How To Calculate The Net Asset Value On A Mutual Fund?

Answer 1

In the world of investing, it’s probably safe to assume that very little should be considered cut and dried. The same can be said with quoted returns on mutual funds. It may seem as simple as “if you buy at $10 and sell at $11 you return 10%” but if you dig a little deeper and peel back the layers you might find it a bit more complicated.

Mutual fund prices are called “net asset values”. In simple terms, it means at the end of the day they total up the net level of assets in the mutual fund pool, divide that number by the total number of shares outstanding and the result is your net asset value.

But how you come to the total net asset number deserves some explanation. In most stock funds, that means everything gets thrown into the pot – the value of current holdings, any capital gains you may have earned from sold shares and any dividends that the underlying stocks may have paid. To get to the “net” number, investment firms then subtract management fees and operating expenses and the result is the net asset value.

Net asset values on bond and money market funds get calculated a little bit differently. The calculation is essentially the same except when it comes to dividends. Since bond and money market funds produce regular dividends, they’re pooled off to the side and kept separate from the daily net asset value calculation. That pool is then distributed typically at the end of every month to shareholders.

With any kind of mutual fund, any type of distribution that is made by the fund (capital gains or dividends) is what is taxable to the shareholder come tax time.

The mutual fund net asset value in the end serves the same purpose as a stock’s price. Due to money managers overseeing the fund and these funds owning hundreds of different securities within their pools, it just takes a little more work to get to the final number.