NET ASSET VALUE(NAV)

Calculating NAV:Add all of the assets of the fund together and divide by the number of shares outstanding.

1000 Shares of Dell @ $35= $36,000100 Shares of Msft @ $29 = 2,9003000 Shares of GE @ $32 = 96,000

Total = $134,900

10,000 shares o/s = NAV of $134,900/10000NAV= $13.49

Next day stocks all go up !!!!! Hurray…….

Dell now $38 = $38,000Msft now 30 = 3,000GE now 33 = 99,000

Total now = $140,000With same 10,000 shares NAV now = $14 ($140,000/10,000)

The number of shares you own is the dollar investment you made divided by the NAV.

Let’s say you now decide to invest $10,000 in this fund. The portfolio manager immediately invests your $10,000 so there are now $150,000 in assets in the fund. You receive 714 shares for your investment. ($10,000/$14) = 714 sharesNow there are 10,714 shares with assets of $150,000 so the NAV is still $14 ($150,000/10,714).

Your portfolio manager has done a good job picking the stocks for the fund and the fund value a year later has risen to $200,000 with no new investors having come in. You have now graduated and need cash so you decide to leave the fund. You call the fund and tell them you want to withdraw all of your funds by selling your shares back to them. You notice in the paper that the NAV is now $18.66. You confirm this by looking at your original purchase order. You own 714 shares which at $18.66 means they will send you a check for $13,323. So in one year you have made a profit of $3,323.

Notice that the NAV changes when the value of the underlying assets changes. In our example when you decided to invest your $10,000 the assets went up but so did the number of shares thus keeping the NAV the same…..And when you left the fund…the assets under management dropped to $186,677 ($200,000-$13,323)….but the NAV stays the same because there are now only 10,000 share outstanding since the fund repurchased your 714 shares…