Unlike closed-end investment funds, open-end mutual funds do not trade on an organized stock exchange. Open-end mutual funds are purchased and sold directly with the mutual fund company. As a result, the mutual fund’s unit value and transaction price is based upon its calculated net asset value (NAV).
The NAV is calculated by dividing the market value of the fund’s investment portfolio by the number of mutual fund units issued and outstanding.
This calculation is typically done daily for the majority of mutual funds at the close of the financial markets.
Example: Let’s say that an investment fund held four investments with market values of $100.00, $98.00, $176.00 and $125.00, for a total portfolio equal to $499.00 at the end of the trading day. In addition, the fund has issued 100 units to investors. To calculate the investment fund’s NAV, per unit issued, we simply divide the portfolio’s value ($499.00) by the number of units issued to investors (100). This result is an NAV of $4.99 per investment fund unit.