(this is the 3rd article in this series. Please do read at least article 2 – what makes the price of ango up or down)
The value of anis the sum total of the value of all the shares it holds. Since share prices change daily, so does the value of the fund. Thus, the has a daily value based on that day’s share prices of the companies it holds.
Daily Net Asset Value (NAV) calculation
The stock market closes at 3.30pm on each business day. Thecompany then values its based on the closing share prices. Any cash in the bank is added and payables to others are subtracted to determine the value of the fund. A daily estimation of the expenses of running the fund is reduced from the value. This total value is divided by the number of units issued so far, resulting in that day’s per unit NAV.
Mostare “open-ended” and new investments (by you and me) for that day increase the number of units (and cash) in the fund. Similarly, new withdrawals for that day decrease the number of units (and cash). Any surplus cash is invested by the when he or she sees fit, while any deficit is met by selling shares.
Here’s an example of NAV with athat has 1 share each of 3 companies. For simplicity, we’ve assumed the number of units remains the same over time.
This shows you how the “price” or NAV of anis computed. work differently and will be covered in a separate article.