Many investors own mutual funds, either as part of their 401(k)s or in another account. Like a stock, owning shares in a mutual fund means you own shares of a “business”. The mutual fund’s business is buying and selling assets such as stocks, bonds, cash, etc. How do you know the value of the business (in this case the mutual fund)? Net Asset Value (NAV) determines the price of one share of a mutual fund. You arrive at the NAV by adding all the assets of the mutual fund (stocks, bonds, cash) and subtracting all the fund’s liabilities (anything it owes), then you divide that number by the number of shares outstanding.

NAV alone isn’t enough to determine the value of a fund to an investor. While it determines the price paid, it may not reflect the full value. As stated above, a mutual fund is a business and thus transfers its income and realized capital gains to its shareholders. Therefore, the best way to determine a mutual fund’s true value is by looking at its total return. Total return includes any increase or decrease in NAV plus any dividends the mutual fund has paid out to shareholders. 

InvestorKeep will send you an alert if there is a dramatic increase or decrease in NAV on your mutual fund investments. If you receive one of these alerts it may be worth talking to your financial professional to ensure said fund fits into your long-term financial plans.