What Is NAVPS?
Let me explain net asset value per share, or NAVPS, directly to you. It's a financial ratio that shows a fund's value per share, calculated by dividing the total net asset value of a fund or company by the number of shares outstanding. You might also hear it called book value per share.
Key Takeaways
You should know that NAVPS is commonly used with open-end mutual funds, where shares are redeemed at their NAV. For closed-end funds and ETFs, the market price and NAVPS can differ. Remember, NAVPS isn't an indicator of performance, and it's updated once a day after the U.S. stock market closes.
Formula
The formula for NAVPS is straightforward: divide the net asset value by the number of shares outstanding. Net asset value itself is assets minus liabilities. So, Net Asset Value Per Share = NAV / Shares Outstanding, where NAV = Assets - Liabilities.
Example of NAVPS
Take this example to see how it works. Imagine a mutual fund with 7.5 million shares outstanding, holding $500 million in investments, $15 million in cash, $1.5 million in receivables, and $250,000 in accrued income. On the liabilities side, there's $20 million in short-term liabilities, $5 million in long-term liabilities, $35,000 in accrued operational expenses, and $15,000 in other accrued expenses. Assets total $516,750,000, liabilities total $25,050,000, so NAV is $491,700,000, and NAVPS comes out to $65.56.
NAVPS vs. Market Price
For mutual funds or open-ended funds, NAVPS is the price at which you buy and sell shares at the end of each trading day. Closed-end funds and ETFs trade like stocks throughout the day, so market forces can make their market price differ from NAVPS. For instance, on September 25, 2024, the SPDR S&P 500 ETF had a market price of $571.41, while its NAVPS from the previous day was $571.01.
Important Regulation
Keep in mind that the SEC regulates funds under the Investment Company Act of 1940, which covers financial companies like mutual funds that invest, reinvest, and trade securities available to the public.
Why NAVPS Matters
Shares of open-end or mutual funds registered with the SEC are redeemed at their net asset value, so NAVPS gives you insight into a fund's assets and liabilities. The calculation includes the total market value of investments, cash, receivables, and accrued income, minus short-term and long-term liabilities plus accrued expenses like salaries, utilities, and operational costs. These expenses can add up, including management, distribution, marketing, transfer agent, custodian, and audit fees. In corporate contexts, NAVPS or book value per share often sits below the market price due to historical cost accounting and market forces, which is a limitation you should note.
What Does NAVPS Mean for Investors?
Some of you might think a high NAVPS means the fund is too expensive or will give poor returns, but that's not correct. NAVPS isn't about performance; it's just the dollar cost per share. If you have $20,000, you could get 200 units of a fund at $100 NAVPS or 100 units at $200 NAVPS.
What Is the Difference Between an Open-Ended Fund and a Closed-End Fund?
A closed-end fund has a fixed number of shares from an initial public offering. An open-end fund doesn't have a fixed number and is sold directly to you through the fund company.
What Time Is NAVPS Declared?
NAVPS for mutual funds gets updated once a day after the U.S. stock market closes at 4 p.m. EST. There's no strict deadline for funds to submit it to regulators. For more details, check resources on when mutual funds update their prices.
The Bottom Line
In summary, NAVPS, or book value per share, is the per-share value of a mutual fund, ETF, or closed-end fund, declared daily after market close, though the market price might be higher than NAVPS for some funds.
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