Mutual funds are priced daily after market close. The NAV price changes in response to the valuation of the fund. Unlike stocks, mutual funds do not trade on an exchange; rather, they are priced according to the performance of the underlying securities within the fund. This determines the daily NAV price. By charting the NAV price over time, potential investors can estimate the fund’s performance and how drastically its NAV fluctuates with the market.

The NAV can change dramatically when a mutual fund pays capital gains. This typically happens once or twice per year as the fund manager rebalances the portfolio and passes on internal gains to the mutual fund investors. When the capital gain is paid, the NAV price of the fund drops. As a result, most investment professionals measure a mutual fund’s Total Return, which shows appreciation inclusive of dividends and capital gains.  Typically, a fund’s NAV by itself tells you nothing useful about mutual fund performance.

Investors seeking current income will want to pay closer attention to the NAV. If you are concerned with dividends, you need to understand that the dividends paid by a particular fund are paid on a per share basis. This means, for example, that if a fund pays a quarterly dividend of $.10 per share and you own 10 shares, you will earn $1.00 in dividends. So in this case, owning more shares at a lower NAV will result in receiving more dividends.