NAV (Net Asset Value).
In plain English
Net asset value is what one share of a mutual fund or ETF is worth based on the securities it holds. You take the market value of everything the fund owns, subtract any liabilities, and divide by the number of shares outstanding. Mutual funds calculate NAV once a day after the market closes, and that is the price you buy or sell at. ETFs trade all day, so their market price can drift slightly above or below NAV, which is why a large gap between the two is worth noticing.
01Why it matters
NAV is the fair value of what you own inside a fund, and comparing it to an ETF's live trading price tells you whether you are paying a premium.
02The math, step by step
A fund holds 1,000,000 dollars of stock, owes nothing, and has 50,000 shares outstanding. Its NAV is 1,000,000 divided by 50,000, or 20 dollars per share.
03What this is NOT
NAV is NOT set by buyers and sellers minute to minute like a stock. For a mutual fund it is calculated once a day from the value of the fund's holdings.