How is NAV per unit calculated for a mutual fund?

• A. NAV per unit is total assets divided by units outstanding.
• B. NAV per unit equals total fund assets minus liabilities, divided by the number of units outstanding, calculated at the end of each trading day.
• C. NAV per unit equals market price per share times number of shares.
• D. NAV per unit equals fund expenses divided by units outstanding.

Answer: (B)

NAV per unit represents the value of one mutual fund share based on the fund’s net assets. The correct method takes all the fund’s assets, subtracts any liabilities, and then divides by the number of units outstanding, with the calculation done at the end of each trading day. This reflects what the fund would be worth if it were liquidated and distributes that value fairly to each unit.

Think of assets as the total market value of the fund’s holdings plus cash and other receivables, while liabilities are obligations like accrued expenses and management fees. Dividing the net assets (assets minus liabilities) by the number of units outstanding gives the value per unit investors pay or receive when buying or redeeming.

Why the other ideas don’t fit: just dividing total assets by units outstanding ignores liabilities and overstates value. Using market price per share times the number of shares applies to stocks, not a mutual fund’s NAV calculation. Dividing fund expenses by units outstanding doesn’t yield the fund’s value per unit; it doesn’t reflect the net assets available to shareholders.