What is the net asset value of a Investment fund?

When investing in a mutual fund, one of the aspects that potential investors look at is the initial investment to be made in the selected fund. In some cases, this is a specific figure, for example, $500, but in other cases it is a participation and to know its economic value we must resort to the net asset value of the fund, but what is it and how is it calculated?

Let's take a step-by-step approach. The first thing is to be clear that the assets managed by the fund, or the fund's assets, are made up of the money invested by all the fund's participants. In other words, it does not belong to the fund manager, which, as its name suggests, only manages the fund, but to the participants.

The assets under management of the fund are in turn divided into equal units, which have a book value and can be bought or sold. When a unit is bought, a part of the fund is acquired and this transaction is called a subscription, whereas when units are sold, it is usually called a redemption. However, mutual funds may also allow the purchase of a fraction of a unit.

In order to determine the economic value of these units, the net asset value must be calculated. To do this, the total net assets of the fund (net of expenses) on a given day are divided by the number of units outstanding.

Obviously, the fund's net assets can change from one day to the next, since in addition to subscriptions and redemptions, they are also affected by market developments and their impact on the price of the assets in which the fund is invested. This variation also causes the price of the units to vary. This is why, in most funds, the net asset value is calculated daily and published the following day. However, there are exceptions where, due to the nature of the assets in which the fund invests (e.g. public infrastructure or real estate), the calculation is made over longer periods: months, quarters, etc.

Calculating the return

The net asset value is also used to calculate the return obtained, for example, when the fund is redeemed. In this case, the return would be the net asset value at redemption minus the subscription net asset value, divided by the subscription net asset value, and multiplied by 100.

As mentioned above, the net asset value is calculated on the basis of the net assets, i.e. net of any fees that are included. Normally, these are usually the management or performance fee, but it is worth bearing this aspect in mind because, if all the fees are included in the calculation, the resulting value would be the fund's performance, but if this is not the case, the impact of the remaining fees must be deducted from this figure. In the case of redemption and subscription fees, these are not applied to the net asset value, but are subtracted when buying or selling fund units.

Taking all this into account, it is clear that knowing the net asset value of the fund in which you invest is important. However, it is also worth remembering that in a long-term investment it is not necessary (nor almost convenient) to look at the evolution of the net asset value on a daily basis, since downward swings could cause some unnecessary nervousness if it subsequently recovers, since long-term cycles usually allow us to compensate for occasional falls.

All investments involve risks, including no return and/or loss of principal invested and exchange rate risk for investment funds denominated in currencies other than the Dollar.

The payment of the bonus constitutes a return of capital subject to withholding tax, currently at the rate of 19%, which will be charged by the Bank in accordance with the applicable tax regulations. This deduction will not be charged to the Client. The Client will have to declare the benefit received plus the withholding not charged to his personal income tax base, and will be entitled to deduct the aforementioned withholding.