The net asset value (NAV) indicates a fund’s value and is usually presented on a per-share basis. Organisations use the calculated NAV to determine how many shares to issue to investors and the amount of cash paid to them. This makes NAV calculation an essential function in fund management as it offers a transparent valuation of each fund share. It allows investors to track fund performance and assess the true value of their individual shares, which is crucial for making informed investment decisions.  

In this article, we’ll further discuss what NAV calculation is and the benefits of outsourcing it.  

NAV Calculation: Steps and Timeline

NAV Formula 

NAV = Value of Assets – Value of Liabilities 

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

Below is the brief step-by-step process on how to calculate the NAV: 

Step 1: Account all transactions that happened during the NAV period; the type of transactions can be as follows: 

• Trading (buying and selling of securities, such as equities, bonds, mutual funds, options, futures and other derivatives, etc.) 
• Cash transfers (transfer of funds between and within bank accounts) 
• Payment of fees and liabilities (such as management fees, administration fees, financial statement preparation fees, bank and brokerage charges, and other administrative and operational fees related to the fund, etc.) 
• Accrual of fees incurred for the period 
• Foreign exchange (FX) transactions 
• Loan transactions and payments 
• Capital transactions (subscriptions and redemptions in the fund) 

Step 2: Compute for performance/incentive fees, if any – the amount that the fund pays to the investment manager if the fund is “performing” (technically, if the fund achieves a certain level of performance that exceeds its current high water mark – a determined threshold/benchmark of the fund in which exceeded by the current value the fund. 

Step 3: If there is no performance fee to be calculated (the fund did not perform for the period OR did not exceed high water mark), the Gross Asset Value (GAV) – calculated by adding/deducting the profit/losses and deducting the management fees to the beginning net assets – will be equal to the Net Asset Value (NAV) 

Step 4: If there is a performance fee, it will be deducted from the GAV to determine the fund’s NAV. 

The timeline for NAV calculation is as follows:  

1. End of Trading Day: NAV calculations are usually conducted at the end of each trading day, ensuring that they accurately reflect the latest market values of the fund’s assets.  
2. Pricing Data Collection: The fund gathers data on the market value of all assets. 
3. Liability Assessment: Gather information regarding all liabilities and other financial responsibilities. 
4. Liability Calculation: The total liabilities are determined by calculating and adding expenses and other liabilities. 
5. NAV Calculation: To determine the NAV, subtract total liabilities from total assets and divide the result by the number of outstanding shares. 
6. Reporting: The fund company will publish the calculated NAV to investors and stakeholders the following day.  

Why it matters to investors

NAV calculation is crucial for investors as it represents the current market value of their investments in mutual funds or ETFs. In addition to accurate valuation and investment performance tracking, this metric allows investors to compare different funds and determine the buying or selling price per share to ensure fair pricing. It also provides transparency and builds trust since investors can monitor how fund performance and market conditions affect the value of their investments. All these significant points are vital in helping investors make well-informed decisions about their investments. 

NAV Calculation: In-house vs. Outsourcing

Calculating NAV is a key process for fund management, prompting firms to decide whether to manage it in-house or outsource it.  

When conducting NAV calculation in-house, the administrator usually performs the process, allowing direct access and maintaining full control over the process and data. However, it may result in higher costs due to salaries and tech investment.  

On the other hand, outsourcing NAV calculation can reduce labour costs by eliminating the need to hire and train in-house employees. Outsourcing NAV calculation services from a qualified provider often results in lower costs. NAV calculation service providers like Bolder Group offer specialised knowledge, expertise, accuracy and improved efficiency, with dedicated teams and advanced technology. 

Key takeaways

Your fund’s specific needs and priorities will depend on how you manage NAV calculation. If maintaining full control is crucial, opting for in-house management might be the best option. Meanwhile, outsourcing becomes more beneficial if cost savings and specialised expertise are of utmost importance. If you choose to outsource NAV calculation services, it’s important to work with a NAV calculation service provider with a proven track record and a strong reputation that offers a range of services that can meet your organisation’s specific needs.  

Bolder fund services: Why outsource NAV calculation with us

As a fund administrator, we understand the changing requirements for managing a fund, and we ensure that our clients can focus on managing their portfolios instead of spending their time on back-office operations. Under our fund services, we provide a complete range of fund accounting and administration services for hedge funds and funds, including reporting and compliance solutions, tracking of investments and NAV calculations.  

To learn more about our services, contact us today.  

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.