Calculating net asset value (NAV) per share is a crucial valuation method in investing, specifically for closed-end funds and exchange-traded funds (ETFs). NAV is the total value of a fund’s assets minus its liabilities, divided by the number of outstanding shares. For example, a fund with $100 million in assets and $10 million in liabilities, and 1 million outstanding shares, would have an NAV per share of $90.
NAV per share is essential because it provides investors with a metric to assess a fund’s underlying value and compare it to its market price. It ensures investors are paying a fair price for the fund’s shares and can make informed investment decisions. Historically, NAV per share gained prominence in the 1940s when the Investment Company Act required closed-end funds to calculate and report their NAVs regularly.