Definition of Net asset value

Definition of Net asset value and dividends

Net asset value  and dividends have deep connection.

That is paying dividend to shareholders out of profit actually decreases the NAV of their investment. This decrease however does not affect their initial fund value nor does it brings it to loss.

Value of mutual funds is calculated by dividing total value of fund assets to the number of outstanding funds shares. Thus, by distributing dividend the net value of investor’s assets decline.


Brief Explanation of Net asset value and dividends

Shareholders are given options that they can either take the dividend or allow the business to reinvest their dividend. In this case investors receive additional shares. Shareholders should therefore keep in mind their priority of investment and need.

  •  NAV however does not show the complete history or performance of mutual fund.
  • That can be found out by total return of the asset.
  • Total return is calculated as a percentage of net asset value over a period of time.
  • It shows both appreciation of principal and distributions.
  • This combination of information gives a better and complete result on the return of investment.


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