What does the net asset value (NAV) of a mutual fund represent?

The net asset value (NAV) of a mutual fund is a crucial metric that reflects the value of the fund on a per-share basis. It is calculated by taking the total value of the fund's assets—such as stocks, bonds, and cash—then subtracting total liabilities, which can include expenses, debts, and other obligations the fund has. After determining this net asset value, it is divided by the number of outstanding shares, providing an accurate representation of what each share of the fund is worth.

This method of calculating NAV helps investors understand how much their investment is worth at any given moment. It is especially important because it allows for clear pricing of shares at the time of purchase or redemption. By focusing on both the assets and the liabilities, NAV offers a comprehensive view of the fund's underlying value, thereby facilitating informed investment decisions.

In contrast, options that refer to the total value of assets, total liabilities alone, or the income generated from investments do not accurately capture the essence of NAV, as they omit the necessary adjustments to account for liabilities or the share count required to express value per share.