Imagine you started your investment of say $2000 by purchasing shares of a few companies and your friend also inspired by your stock market endeavor purchased shares with an initial investment of $1875. Later on, after 6 months seeing the economy slowing down you sold your shares for $2105 and your friend also seeing signs of weakness sold his a couple of days later for $2000. Whose portfolio performed better?
To analyze the performance of a portfolio irrespective of it being that of a mutual fund, a hedge fund or your very own one, its essential to understand how to measure its performance in the first place. One of the more popular ways of doing this would be by using the concept of an NAV.
NAV stands for Net Asset Value.
By definition NAV is calculated as Current value of fund holdings/Number of fund shares.
Lets understand this by the following example.
Imagine you wanted to invest $10,000 in the stock market (say on the 1st of January) by purchasing shares in various companies. Lets call this investment as a whole as your “Personal fund”. Now lets arbitrarily say that each share of this $10,000 “personal fund” is worth $10 so the number of shares in this fund would be $10,000/$10 = 1000. More »