# Fund Accounting and NAV > Net asset value is a fund's assets minus liabilities, divided by shares. Learn how NAV is calculated, how assets are valued and how errors happen. Source: https://learn.tradelabsai.com/industry/fund-accounting-and-nav/ Track: The Trading Industry · Level: Advanced · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Fund Accounting and NAV", https://learn.tradelabsai.com/industry/fund-accounting-and-nav/ Every fund needs to know what it is worth so investors can buy in and sell out at a fair price. Net asset value (NAV) is that number: the fund's total assets minus its liabilities, usually expressed per share or unit. Mutual funds calculate NAV daily, typically at the market close, and all orders received that day trade at that price. Hedge funds usually calculate it monthly. Fund accountants, often at an independent administrator, perform this calculation, and getting it right is essential for fairness and trust. ## The NAV formula ``` NAV per share = (Total assets - Total liabilities) / Shares outstanding ``` | Assets | Liabilities | |---|---| | Securities at market value | Accrued management and other fees | | Cash | Amounts owed for securities purchased but not settled | | Receivables for securities sold | Redemptions payable | | Accrued dividends and interest | Borrowings | **Example: Calculating a fund's NAV** At the close, a fund holds securities worth $102,000,000, cash of $3,000,000 and accrued dividends of $200,000, for total assets of $105,200,000. It owes $1,500,000 for unsettled purchases and $150,000 in accrued fees, for total liabilities of $1,650,000. Net assets are $103,550,000. With 5,000,000 shares outstanding, NAV per share is $20.71. An investor redeeming 1,000 shares that day receives $20,710. See [Asset Management](https://learn.tradelabsai.com/industry/asset-management/). ## Valuation and pricing | Asset type | Typical pricing source | |---|---| | Listed stocks | Official closing prices | | Liquid bonds | Pricing services using dealer quotes and models | | Derivatives | Exchange settlement prices or models | | Illiquid assets | Fair value models, with a valuation committee | | Foreign securities | Local closing prices, sometimes adjusted for events after their market closed | When markets close before the fund's NAV time, funds may apply fair value adjustments so that investors cannot exploit stale prices. Fair valuing illiquid assets involves judgement, which is why independent administrators, auditors and valuation policies matter. See [Liquidity Risk](https://learn.tradelabsai.com/portfolio/liquidity-risk/). ## Accruals and fees Funds accrue income and expenses daily rather than waiting until payments occur. Management fees, for example, are accrued each day as a fraction of the annual rate, so the NAV already reflects them. Hedge funds also accrue performance fees, sometimes using equalisation methods so investors who join at different times pay fees fairly. See [Hedge Funds](https://learn.tradelabsai.com/industry/hedge-funds/). ## ETFs and NAV ETFs publish a NAV daily but also trade all day on exchanges at market prices. Authorised participants create and redeem ETF shares in large blocks, which keeps market prices close to NAV. During stress, ETF prices can move away from NAV, especially for funds holding less liquid assets such as some bonds. See [What Is an ETF?](https://learn.tradelabsai.com/markets/what-is-an-etf/). ## Who does fund accounting | Party | Role | |---|---| | Fund administrator | Calculates NAV, maintains books, processes investor transactions | | Custodian | Holds assets and provides position and cash records. See [Clearing, Settlement and Custody](https://learn.tradelabsai.com/industry/clearing-settlement-and-custody/) | | Auditor | Annually reviews financial statements | | Valuation committee | Approves fair values for hard to price assets | | Fund manager | Oversees, but ideally does not control, the NAV process | Independent administration became more common after cases where managers inflated their own valuations. Bernard Madoff's fraud, uncovered in 2008, relied on a lack of independent custody and verification. See [Operational and Model Risk](https://learn.tradelabsai.com/portfolio/operational-and-model-risk/). ## NAV errors Errors can arise from wrong prices, missed corporate actions, incorrect accruals or trade booking mistakes. Funds have policies requiring correction and investor compensation when errors exceed set thresholds. Reconciliation of positions and cash with custodians is the main control. See [Trade Accounting and Reconciliation](https://learn.tradelabsai.com/industry/trade-reconciliation/). ## Frequently asked questions ### What is NAV? Net asset value, the total value of a fund's assets minus its liabilities, usually expressed per share. ### When is mutual fund NAV calculated? Typically once a day after the market close, and all orders received before the cutoff trade at that day's NAV. ### Why can ETF prices differ from NAV? ETFs trade continuously at market prices; supply, demand and liquidity of the underlying assets can create small premiums or discounts to NAV. Next, learn how funds report to their investors in [Investor Reporting](https://learn.tradelabsai.com/industry/investor-reporting/). ## Continue learning - Next lesson: [Investor Reporting](https://learn.tradelabsai.com/industry/investor-reporting/) - Previous lesson: [Margin Financing](https://learn.tradelabsai.com/industry/margin-financing/) - Related: [Margin Financing](https://learn.tradelabsai.com/industry/margin-financing/): Margin financing lets traders borrow from brokers against their holdings. Learn how margin loans are priced, collateral haircuts, margin calls and financing risks. - Related: [What Is an ETF?](https://learn.tradelabsai.com/markets/what-is-an-etf/): An ETF is a fund that trades on an exchange like a stock. Learn how ETFs track an index, how they differ from mutual funds, their costs and how to choose one. - Related: [Asset Management](https://learn.tradelabsai.com/industry/asset-management/): Asset managers invest money for clients through mutual funds, ETFs, pensions and separate accounts. Learn the main types, how they earn fees and how they invest. - Related: [Investor Reporting](https://learn.tradelabsai.com/industry/investor-reporting/): Investor reporting tells clients how a fund performed and why. Learn what reports contain, GIPS standards, the key metrics and how to read a fund report critically. - Related: [Hedge Funds](https://learn.tradelabsai.com/industry/hedge-funds/): Hedge funds are private investment pools using flexible strategies, leverage and short selling. Learn the main strategies, fee structures, regulation and risks. - Related: [Trade Accounting and Reconciliation](https://learn.tradelabsai.com/industry/trade-reconciliation/): Reconciliation checks that internal records of trades, positions and cash match brokers, custodians and clearing houses. Learn the process, common breaks and fixes.