Know The Difference Between NAV & Share Price

Honestly speaking, both terms may sound similar to new investors. But in reality, they carry different meanings. For example, a share price represents the sale or trade of shares between a seller and buyer on a public securities market. On the other hand, NAV, or Net Asset Value, is the value of one share in a mutual fund that holds numerous securities. Investors often use these values and prices to determine the value of their investment portfolios and evaluate their buying and selling tactics. 

NAV in Mutual Fund vs Share Price

When trading mutual fund shares, the NAV pricing structure differs from ordinary shares or equities issued by corporations and traded on stock exchanges. 

A company issues a limited number of equity shares from an initial public offering (IPO) and maybe additional future listings traded on security exchanges. The prices of shares are determined by the market forces or the demand or supply for shares. Thus, share prices are based on the market demand for the shares.

You must perform the following processes to determine the book value per share accurately, or share price, for your company:

• Calculate the company’s book value.
• Add up all of the outstanding shares of the company.
• Divide the company’s book value by the total number of shares.

In contrast, mutual fund nav can be defined as the amount invested, its operating expenses, and the number of outstanding shares. Moreover, the fund’s performance is not measured by the NAV. The NAV of a mutual fund is irrelevant primarily when assessing a fund’s effectiveness because mutual funds allocate almost all of their returns and generate capital gains to fund shareholders. The best way to assess a mutual fund is to look at its total return, which considers dividend payments and the performance of the underlying securities.

The NAV formula is expressed as follows:

NAV = (Assets – Liabilities) / Total number of outstanding shares

Factors Affecting Share Prices

1. The most important factors that directly impact the share price are the market demand and supply for that share. For example, a share’s price will increase if more shares are purchased than are sold since more investors are likely to buy the stake when demand exceeds supply.
2. Its revenues and profitability may also impact a company’s share prices by creating and selling goods and services.
3. The price of shares can also be affected by the action of market participants.
4. If the share’s demand and supply remain constant, its prices will remain almost similar or equal. A sudden change is possible if one of the causes predominates over the other.

Factors Affecting NAV in Mutual Funds

1. A NAV in Mutual Funds increases when the underlying asset reports earnings. Similarly, the fund’s NAV will drop if the market and the underlying asset book losses.
2. Professional asset managers administer mutual funds for an annual fee. These costs are known as “Management Fees” and are subtracted from the mutual fund’s NAV. As a result, these fees reduce the mutual fund’s NAV and SIP plans.
3. Similarly, a mutual fund’s NAV decreases when it distributes a dividend. The amount of dividend payout directly correlates to the amount of NAV decline.
4. The NAV decreases for the current investors if investors take profits and sell their holdings at a high NAV. The inverse is also applicable.

Conclusion

After reading the article, we can conclude that both terms are highly different. A NAV in mutual fund, or unit price, is determined based on the underlying investments. In comparison, the share price is represented as the unit value of a company. In addition, the company’s market value is based on the current market demand and supply of shares. In contrast, the NAV of a mutual fund does not change in response to supply and demand in the market.