Fund investors need to know: What is NAV and why does it affect your profits

NAV: The Number That Controls Your Fund’s Buy/Sell Price

For investors just starting with mutual funds or ETFs, you might wonder what NAV or Net Asset Value (the total asset value based on current market prices) is and why it matters. In fact, NAV is not just a simple number; it’s a tool that determines the buy and sell prices of your investment units every day. If you understand NAV well, you can make more informed investment decisions.

What Is NAV Calculated From?

A fund’s NAV is calculated by adding up all assets (valued at current market prices), including accumulated profits and cash, then subtracting the fund’s expenses and liabilities. This result is updated daily, a process called “Mark to Market” — meaning assets are valued at the closing market prices of that day.

When you divide the NAV by the total number of investment units, you get NAV per unit — the price at which your investment units are bought and sold.

Real Example: Suppose Fund Z holds real estate worth 10 million baht, plus 1,000 shares (closing price per share 1,000 baht), with no liabilities. The total is 11 million baht. If the fund issues 200,000 units, the NAV per unit will be 55 baht.

How Is NAV Different from Stock Price?

Let’s clarify the difference: Stock price is determined by the buying and selling negotiations between buyers and sellers on the stock exchange, depending on supply and demand at that moment. Meanwhile, NAV per unit reflects only the actual assets held by the fund — similar to the book value per share (Book Value Per Share).

In other words: stocks may trade above or below their true value, but NAV per unit shows the general value of the assets you hold.

How Do Increases or Decreases in NAV Affect Your Profit?

If the assets held by the fund increase in value (such as stock or real estate appreciation), the NAV per unit will rise, meaning investors who held units beforehand will see gains. Conversely, if assets decrease in value, NAV drops along with your profit.

Using NAV to Evaluate Fund Performance

Investors will see that a rising NAV per unit over time is a good sign, especially when compared to similar funds with similar policies and assets. If Fund A’s NAV grows faster than Fund B’s, it indicates that Fund A is managing its assets more effectively.

On the other hand, a fund with a stable or slowly growing NAV might be a warning sign that management isn’t performing well or that the fund is choosing the wrong assets.

Important Cautions When Considering NAV

First Point: The NAV per unit you see now is based on the previous day’s prices. The actual buy/sell prices will only be known after the market closes, so investors cannot know the exact prices before placing orders.

Second Point: A high NAV per unit doesn’t necessarily mean the fund is expensive. A high NAV could be due to genuinely high asset values or because the fund has issued fewer units. Therefore, don’t decide solely based on whether NAV is high or low; study the asset quality, investment policy, and conditions alongside.

Third Point: Some funds, such as leasehold real estate funds (Leasehold), may see their NAV gradually decline to zero as the lease expires. Investors should be aware of this risk.

Summary

NAV is a key figure that controls the buy and sell prices of investment units and directly impacts your profits. Understanding how NAV is calculated and why it changes helps you make better investment decisions. Remember, NAV per unit is just one part of analysis — you should consider other factors to choose funds wisely.