What Is Net Asset Value (NAV)?
Net asset value (NAV) is the per-share value of a fund's underlying holdings. It is calculated by adding up the total market value of all securities the fund holds, subtracting any liabilities (like fees owed), and dividing by the total number of shares outstanding.
For mutual funds, NAV is everything — you always buy and sell at the NAV price. For ETFs, NAV serves as an anchor. ETFs trade at market prices on an exchange, which can differ from NAV, but arbitrage keeps the two closely aligned.
How Is NAV Calculated?
The formula is simple:
NAV = (Total Value of Assets − Liabilities) ÷ Shares Outstanding
For an ETF holding stocks, "total value of assets" is the sum of each stock's closing price multiplied by the number of shares held, plus any cash in the fund. Liabilities include accrued expenses like the expense ratio and any other fees owed.
The official NAV is calculated once per day, after the market closes at 4:00 PM ET. This is the same process mutual funds use to set their daily trading price. For ETFs, this end-of-day NAV is published but does not directly determine the price you pay — that is set by the market.
NAV vs Market Price: Premiums and Discounts
Because ETFs trade on exchanges, their market price is determined by supply and demand among buyers and sellers. This price can diverge from NAV in two ways:
Premium: The ETF trades above its NAV. You are paying more for the ETF shares than the underlying holdings are worth. Small premiums (under 0.05%) are normal and harmless.
Discount: The ETF trades below its NAV. You are getting the underlying holdings for less than their calculated value. This sounds like a bargain, but persistent discounts can signal liquidity issues.
For the most popular domestic stock ETFs, premiums and discounts are typically just a few cents per share. For international ETFs, bond ETFs, or niche funds, the gaps can be wider. You can check an ETF's premium/discount history on its profile page.
How Authorized Participants Keep Prices Aligned
The mechanism that keeps ETF prices close to NAV is arbitrage by authorized participants (APs). When an ETF trades at a premium, APs can create new shares by assembling the underlying securities and exchanging them for ETF shares, then selling those shares on the market. This increases supply and pushes the market price back down toward NAV.
When an ETF trades at a discount, APs buy the cheap ETF shares on the market, redeem them with the issuer for the underlying securities, and sell those securities for a profit. This reduces supply and pushes the price back up toward NAV.
This process happens continuously throughout the trading day and is the fundamental mechanism that makes ETFs work. Learn more about this in how ETF prices are set.
Indicative NAV (iNAV): Real-Time Estimates
Since the official NAV is only calculated once per day, investors need a way to estimate the value of an ETF's holdings during trading hours. The indicative NAV (iNAV), also called the intraday indicative value (IIV), fills this gap.
The iNAV is calculated and published every 15 seconds during market hours. It uses the real-time prices of the ETF's underlying holdings to provide a continuously updated estimate of what the NAV would be if it were calculated right now.
Market makers and traders use the iNAV to assess whether the ETF is trading at a fair price. If the market price drifts too far from the iNAV, arbitrageurs step in to close the gap. For most liquid ETFs, the market price stays within a tight range of the iNAV throughout the day.
When NAV Matters Most
For everyday buy-and-hold investors purchasing liquid, domestic ETFs, NAV is mostly an academic concept. The arbitrage mechanism works so well that you will almost always pay a fair price. Where NAV becomes more important:
International ETFs: When the underlying foreign markets are closed during US trading hours, the iNAV is based on stale prices. The ETF market price may better reflect current information, leading to larger apparent premiums or discounts.
Bond ETFs: During market stress, the underlying bonds may be hard to price accurately. Bond ETF market prices can diverge from NAV significantly, as happened in March 2020. Some argue the ETF price is actually the more accurate reflection of true value.
Thinly traded ETFs: With fewer market participants, the arbitrage mechanism is slower, and gaps between price and NAV can persist. Use limit orders when trading less liquid ETFs.
NAV in ETFs vs Mutual Funds
In a mutual fund, NAV is the only price that matters. You buy at NAV, you sell at NAV, calculated once daily. There is no premium or discount because there is no open-market trading.
In an ETF, NAV is a reference point. The actual price you pay is the market price, which should be very close to NAV but is not guaranteed to match it. This is one of the few areas where mutual funds have an advantage — price certainty at the time of the trade.
For most investors, the ability to trade ETFs at known prices during the day (using limit orders) more than compensates for the slight risk of paying a small premium or discount to NAV. Use the comparison tool to evaluate specific funds.
