As with all money market funds, the net asset value or NAV is a foundational concept for money market funds. Let's have a quick recap before we look at the NAV in money market funds. More specifically. At its core, the NAV is the heart rate of a mutual fund providing a snapshot of its financial health at any given moment. It represents the per share market value of the fund. To put it simply, if you were to liquidate all the assets in the fund, pay off all the liabilities, and then distribute the remaining money amongst shareholders, the amount a shareholder would receive for each share owned is the NAV. So how is the NAV calculated? Usually, NAVs of mutual funds are calculated daily by a formula that is elegant in its simplicity. The NAV is nothing else than the total value of the assets, minus the total value of the liabilities divided by the total number of outstanding shares. For instance, consider a mutual fund with total assets of 100 million, total liabilities of 10 million and 10 million shares outstanding.

The NAV per share would be 100 million assets minus 10 million liabilities, which makes 90 million divided by 10 million shares giving a NAV of nine per share. As we said before, the concept is really straightforward, but why is the NAV so important? First of all, the NAV is the price for buying and or selling a mutual fund. When you invest in a mutual fund, the purchase price you pay is the NAV. Conversely, when you sell, the selling price is also the NAV at that time. So for an investor, the NAV is the entry and exit price. We're ignoring potential fees here for simplicity. For many mutual funds, the NAV is used as a performance indicator, and the fund's performance is often gauge by monitoring changes in its NAV over time. If the NAV is on an upward trend, it indicates positive fund performance and vice versa. This might of course be too simplistic in some cases, but it is often at least the first step. Last but not least, the NAV can be used for daily valuation of positions in the mutual fund. The NAV is calculated at the end of the trading day, factoring in the closing prices of all of the securities in the fund's portfolio. As such, it captures the cumulative effect of the day's economic news, market trends, and any other news that might have affected the securities prices. This ensures that the nav provides a snapshot that is representative of the fund's true value on that specific day.