In our post titled “How do I invest in a mutual fund … and how do I get out again?” we have already seen that you can invest in an investment fund by acquiring units or shares issued by the fund. The price of these units and shares can be established in two different ways:
For actively managed funds, it is based on the value of the fund’s assets. To calculate this, the fund administration determines the value of all the assets hold in the portfolio, then subtracts any debts and liabilities and divides the resulting amount by the number of outstanding units and shares of the fund. The resulting figure is called “Net Asset Value” (NAV) per share. It forms the basis for the price of a fund share or unit, to which various fees and commissions may be applied, as we have seen in our review of the cost related to investments in investment mutual funds.
The frequency of NAV calculation depends on the nature of the fund. The NAV per share of a bond or equity fund, for example, is typically determined at the end of each trading day.
The value of the assets in a real estate fund, however, fluctuates far less, and as this type of fund is intended for long-term investments, the NAV may be established at intervals of several months or event up to one year.
Investment funds, and especially UCITS must publish their NAV.
For funds that are traded on a Stock Exchange – the so-called Exchange Traded Funds (ETF) – the price of their shares or units tracks the value of the funds’ assets, but it is also influenced by supply and demand from investors. It is thus established in the same way that the price of any security traded on the Exchange. For more information, read our article “The stock price – the great mystery” in our Basics section.