Delving into unit trusts: Understanding the net asset value of a fund

Julie Brownlee, Fsp Invest, 09 Mar. 2015

Tags: unit trusts, net asset value, nav, net asset value of a fund, net asset value of an etf, etfs, funds,



If you want to invest in unit trusts, you might be overwhelmed with the vast amount of information on them.

Once you start digging into particular fund more, you might come across its net asset value.

So what does this mean? And what does it mean to you?

Read on to find out moreā€¦



The definition of a net asset value of a fund


The net asset value (NAV) of a fund is the value of its underlying investments minus the value of any of its liabilities. Liabilities include any money the fund borrows to try to increase its returns.

You’ll usually see net asset value given in per share or per unit terms.

For instance, take a unit trust that holds shares worth R100 million. It has R20 million in borrowings. And it has 50 million units outstanding. So it has a net asset value of R1.60 per unit ((100-20)/50).


How to use the net asset value of a fund


With unit trusts, the net asset value links to the price you pay when you invest in the fund. The premium or discount of a unit trust’s net asset value can be large.

Ideally, you want to invest when the unit trust is trading at a discount to its net asset value, not at a premium.

When it comes to exchange traded funds (ETFs), which are effectively like listed unit trusts, the market determines the price they trade at. Their traded price will usually be close the net asset value because there’s an incentive for institutional investors to keep ETF prices in line with it.

The exception here is in times of market turmoil, when there can be large temporary discounts and premiums in price.

So there you have it, understanding the net asset value of a fund.

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