Mutual funds only trade once a day after the equity market closes. A mutual fund’s price is determined by the net asset value calculated after the stock markets close. The net asset value is calculated by dividing the total net assets by the total units outstanding. To determine a mutual fund’s total net assets, subtract the mutual fund’s liabilities like operational expenses or fees owed to banks from the current value of the fund’s assets.
Net Asset Value = [Assets – (Liabilities + Expenses)] / Number of units outstanding
A mutual fund’s reported net asset value indicates the price a buyer pays or a seller would receive after deducting any fees. The net asset value is determined at the end of the market day because the market value of stocks or ETFs fluctuates significantly throughout the trading day.
Let’s assume a mutual fund has $100 million in securities, $20 million in cash and cash equivalents, and $10 million in liabilities. Let’s also assume that it has 10 million shares outstanding. Using the above formula, the net asset value is calculated as follows:
Net asset value = ($100,000,000 + $20,000,000 – $10,000,000) / 10,000,000 = $11.00
For the given day, the mutual fund’s shares will trade at $11.00 per share.
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