The Net asset Value or NAV of a mutual fund is the value of the securities in the fund portfolio minus any outstanding liabilities the fund has. The NAV of the fund divided by the number of outstanding shares is the net asset value per share.
Mutual funds can trade at a premium to, or at a discount to, their Net Asset Value or NAV. The reasons for this can be complex but the main reasons usually are:
1. Supply and Demand: If shares in the fund are in strong demmand, but there is a short supply, then the fund will trade above its NAV. If demand is low or there is a plentiful supply of shares the mutual fund will trade below its NAV.
2.Expectations of Investors: If securities held in the funds portfolio are expected to do well in the near future, increased demand for the funds shares will drive the price above the NAV.
3.Management Of The Fund: If the fund has a manager who is well respected in the investment community this can create a demand for the funds shares which may drive the price above the NAV of the fund.
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