Use Mutual Fund NAV to Calculate Returns, Not Exchange Quotes

Summary

The discussion explains which price series to use when calculating mutual fund returns. For a conventional mutual fund, it recommends using net asset value (NAV), which represents the value of the fund’s holdings per outstanding share and is generally calculated by the custodian, often daily. Fund returns should also account for distributions such as dividends.

Some funds can be traded on an exchange, where quotes are published more frequently and may differ from the most recently published NAV. Because NAV can reflect an earlier valuation while exchange prices respond to changing market conditions, the exchange quote may anticipate a later NAV and include bid and ask prices. The answer therefore distinguishes NAV-based fund valuation from market trading prices. It offers a general explanation rather than a complete return-calculation procedure, and does not detail fees, distribution reinvestment, or how practices vary across fund structures and markets.

Key ideas

• NAV expresses the fund’s value per outstanding share and is the recommended basis for calculating conventional mutual fund returns.
• Include fund distributions when measuring total return.
• Exchange-traded mutual fund quotes can update more often than NAV.
• Market quotes can diverge from the latest published NAV as investors respond to changing conditions.
• Distinguish valuation-based NAV returns from returns calculated using exchange prices.

Tags

# Mutual Funds: NAV vs Price


# Mutual Funds: NAV vs Price












When calculating the return of a mutual fund, do I look at the NAV(+dividends) or do mutual funds trade as different prices compared to their NAV like closed-end funds or ETFs?

## Answer by Peter (score 3)

https://quant.stackexchange.com/a/42639

To calculate the return of a mutual fund, you should use NAV prices. NAV prices represent the value of the fund divided by the outstanding number of shares. The NAV is calculated by the fund custodian bank, most commonly on a daily basis. If you call your bank and buy a fund, the usual way is that your bank buys it from the mutual fund company. You pay the initial fee.

In Europe, you can also trade some funds on the stock exchange. The stock exchange is publishing prices frequently. This price is oriented to the NAV. Example: the NAV of a Mutual Fund is 100, calculated and published yesterday. Suppose that the fund portfolio is European stocks and suppose that the next trading day is a market surplus. The Stock exchange is predicting the next day NAV price and is publishing bid/ask prices higher than yesterday's NAV.

So if you have to calculate the return of a mutual fund, you should distinguish between NAV prices and market exchange prices.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.