NAV Return

The NAV return is the change in the net asset value of a mutual fund over a given time period. The NAV return of a mutual fund is one measure of return and can be different than the total return and the market return that investors realize because these products can trade at a premium or discount.

The NAV return is calculated based on the daily NAV of the fund reported after the stock market’s close each trading day. The NAV is a basic calculation performed by the fund’s accountants. It represents the total assets minus total liabilities divided by outstanding shares. The value changes daily with the fluctuation of assets based on market value. The NAV return is a transparent accounting measure that reports the actual assets in the fund at the end of the day. Therefore, dividends, interest and capital gains distributions paid out to shareholders would not be included in the total assets unless they were reinvested.

The total return of a mutual fund provides a performance figure that includes distribution payouts. Therefore, it accounts for distributions associated with the fund that are paid out to shareholders regardless of whether or not these distributions are reinvested in the total assets of the fund. Distribution payouts are the primary reason an investor will see variations in NAV versus total return.

Investment funds that trade on exchanges with daily pricing, such as closed-end funds and exchange-traded funds, may also have a market price and a market return. Funds trading in real time with a market price can incur a market premium or discount that causes their market return to vary from the NAV return. Funds trading above their NAV are said to trade at a premium. Funds trading below their NAV are trading at a discount. Premiums and discounts may occur due to the real time valuations of securities in the fund versus their daily NAV. Funds typically trade close to their NAV with some deviation. If a fund varies excessively from its NAV then authorized participants may intervene to help correct the price.

Investment companies provide transparency in their fund performance reporting to help investors identify NAV return, total return and market return. Investors should monitor the returns they use to track the performance of their investments. Ensuring understanding of fund performance calculations will help an investor’s due diligence and performance comparisons.