Understanding the NAV of unit trusts and ETFs

Julie Brownlee, Fsp Invest, 28 Apr. 2015

Tags: nav, net asset value, unit trusts, exchange traded funds, funds, nav of funds, investing in funds,



When researching unit trusts, you’ll come across a wide array of information.

This may include the net asset value (NAV).

So what is the NAV of a unit trust? And how does it differ from the NAV of an exchange traded fund (ETF)?

Read on to find out…



What is the NAV of a unit trust?


A unit trust’s NAV is the value of all the fund’s underlying investments, such as shares, minus any liabilities. Liabilities include any money the fund borrows to try to increase its returns.

You’ll usually find NAV given in per unit terms.

For example, a unit trust holds R100 million in shares and has R20 million in borrowings. It currently has 50 million units outstanding.

This gives it a NAV of R1.60 per unit ((R100-R20)/50).

The NAV relates to the price you pay when you invest in a unit trust.


How does the NAV of ETFs differ?


With ETFs, the market sets the price of the funds. And depending on the price, this may be at a discount or a premium to the fund’s NAV.

But this difference usually stays close to the fund’s NAV. This is because institutional investors have an incentive to keep the price of the ETF in line with its NAV.

The only time there may be gaps appearing between a fund’s NAV and price is when there are market corrections. Then there may be temporary discounts and premiums to a fund’s NAV.

So there you have it, understanding the NAV of unit trusts and ETFs.

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