The link between NAV and the price you pay to invest in funds

Julie Brownlee, Fsp Invest, 01 Sep. 2015

Tags: nav, nav of etfs, nav of unit trusts, net asset value, nav of funds,



NAV, or net asset value, is the value of a fund’s underlying investment minus its liabilities.

You’ll usually find NAV given on a per share basis for exchange traded funds (ETFs) and on a per unit basis for unit trusts.

So what relevance does NAV have to both ETFs and unit trusts?

Let’s take a closer look…



Where the NAV of funds comes from


Say you have a fund that has investments in R100 million worth of stocks. It also has R20 million in liabilities. There are 50 million units or shares for the fund.

This gives it a NAV of R1.60 per unit or share ((100 – 20)/50). In other words, this is the value of the share or unit according to its investments and liabilities.


The role of NAV differs between unit trusts and ETFs


With unit trusts, NAV relates to the price you pay when you invest in the fund.

But with ETFs, which are listed on the stock market, the market determines the share price. This means the share price can trade either at a premium or a discount to NAV.

With ETFs, you usually find that the share price is usually close to the NAV. This is down to institutional investors trading directly with the manager of the ETF, which keeps the price in line, explain the experts at Money Week.

But during times of extreme market volatility, this link can break. This means that ETFs can trade for short times at premiums or discounts to their NAVs.

So there you have it. The link between NAV and the price you pay to invest in funds.

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