What does 'net asset value' (NAV) indicate?

Net asset value (NAV) is a critical metric used in the context of mutual funds and other investment vehicles. It represents the value of a fund's assets after all liabilities have been deducted, essentially providing a clearer picture of the actual worth of each share of the fund to shareholders.

When considering NAV, it is calculated by taking the total value of the fund's investments (assets) and subtracting any outstanding obligations (liabilities). The resulting figure is then divided by the number of shares outstanding, giving an investor a per-share value. This is important because it provides investors with a tangible measure of how much each share is worth based on the current assets and liabilities of the fund.

Understanding NAV is crucial for both buying and selling shares in investment funds, as it directly influences the price at which transactions occur. In contrast to other options, such as the total value of a fund's liabilities, the market value of assets held, or projected future value, NAV focuses specifically on the current valuation of equity held by shareholders. This makes it an essential concept for anyone involved in mutual fund investments or interested in tracking fund performance.