If you invest in mutual funds or are thinking about doing so, you may watch the net asset value (NAV) of the funds to see how they are performing or to determine if it's time to buy or sell shares. But NAV is not the best indicator of the long-term performance of a mutual fund.

What Is NAV?

The net asset value (NAV) is the price of one mutual fund share. The NAV is calculated by dividing the fund's total net assets by the total number of shares outstanding. Total net assets are determined by taking the closing market value of all the fund's securities, adding all other assets such as cash, and subtracting any liabilities. A fund with total net assets of $10 million and 500,000 outstanding shares would have an NAV of $20.

A fund's NAV can give you an idea of how a fund is performing on a day-to-day basis. You can see if that fund's NAV went up or down on any given market day.


How NAV Differs from Stock Price

NAV is the price of one mutual fund share, and stock price is the price of one share of a company's stock. However, NAV is different from stock price in several ways, including:

  • A mutual fund NAV is calculated only once per day after the close of the market. A company's stock price can fluctuate up or down throughout the day.
  • A mutual fund NAV is determined using the calculation described above (dividing the fund's total net assets by the total number of shares). A company's stock price is determined by market factors. For example, a company's stock can fluctuate based on factors including the general state of the economy, the company's fundamentals such as its earnings, and investor perceptions.
  • You can get a good idea of the performance of a company's stock by looking at its stock price. A mutual fund's NAV is a somewhat arbitrary number and won't tell you as much about a fund's performance. If a mutual fund has an NAV of $10, it isn't necessarily a better investment than a mutual fund that has an NAV of $5. And a mutual fund's NAV drops whenever it pays a distribution of capital gains or dividends. If you reinvest your distribution, you'll still have the same account balance, but you'll own more shares at the lower NAV.

Total Return Measures Long-Term Performance

To evaluate a fund's long-term performance, you're better off looking at its total return percentages for one, five and 10 years (if available). Total return shows you how much the fund's shares appreciated or depreciated over the long term and takes into account any distributions of dividends or capital gains.

Remember that a fund's past performance is no guarantee of future results. You should consider other factors in addition to a fund's performance. For example:

  • Your risk tolerance and investment time horizon
  • The fund's objectives and investment style
  • The tenure of the fund's manager(s)
  • The stability of the fund company
  • The fund's compatibility with your investment goals
  • The fees associated with investing in the fund

Analyzing these factors and long-term performance can provide you with a complete picture. Be sure to read a fund's prospectus carefully before investing or sending money.


This information is for educational purposes only and not intended to serve as investment advice.