Net Asset Value — the per-share value of a fund calculated by dividing total assets minus liabilities by shares outstanding.
NAV is the theoretical per-share liquidation value of a fund. For mutual funds, NAV is calculated once daily after markets close and is the price at which investors buy and sell shares. For ETFs, NAV is calculated continuously throughout the trading day, but ETFs trade on an exchange at a market price that can differ from NAV.
The difference between an ETF's market price and its NAV is called the "premium" or "discount." Authorized participants — large financial institutions with special agreements — can create and redeem ETF shares in large blocks (creation units), which arbitrages away most premiums and discounts in liquid ETFs. In illiquid or stressed markets, premiums and discounts can widen significantly: bond ETFs briefly traded at substantial discounts to NAV during the March 2020 liquidity crisis.
For closed-end funds (which cannot issue new shares), premiums and discounts to NAV can be persistent and large — sometimes presenting opportunities. Some investors specifically seek closed-end funds trading at wide discounts to NAV as a value strategy, though discounts can persist indefinitely or widen further before closing.
This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.