Meaning Of Net Asset Value
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There are many terms in the world of business and investment, the meanings of which are not clear from their name. As a result, we need to take advice from experienced people in the field or good books that can help us understand the terms and phrases better. For people who are new to investments in mutual funds, the meaning of net asset value is often not very clear or explicit.
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This article tries to explain the meaning of the term ‘net asset value’ in simple and easily understandable form.
Net asset value reflects the market value of all securities or the total assets (stocks, bonds and net cash) owned by a mutual fund, minus its total liabilities including the loan capital, divided by the number of shares issued. It is usually issued on a per share basis. Therefore, net asset value is the price per share of a mutual fund.
The net asset value of stocks and bonds can vary on a daily basis. Generally, stock funds have a broader range of price fluctuation than the bond funds. The shares of an open-end mutual fund are bought and sold at the fund's net asset value, which is calculated at the end of each trading day. But this is not the case in closed-end mutual funds. The shares of a closed-end fund are either traded over-the-counter or in major stock exchanges and their net asset value is determined by its supply and demand. As a result, the price of a share may not be equal to its net asset value and closed-end funds usually sell at a discount to the actual net asset value.
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