Open-end mutual funds

You may invest your money in a mutual fund through the buy of shares to Net Asset Value (NAV). The Net Asset value (NAV) is the value in the market of the Fund’s Assets at the end of a day of negotiations, minus any obligation divided by the number of outstanding shares.

The open-end funds determines the market value of its assets at the end of a day of negotiations. For example, a balanced fund that invests in common stocks and bonds uses the days closing price to determine its value in the market.

The total number of shares of each of the stocks and bonds that the fund has is multiplied by the closing price. The resulting total amount of each investment is added, and any obligation related to the fund such as accrued expenses are subtracted. The resulting total amount of net assets are divided between the number of  existing shares in the fund to put them at the same level as net value price of assets per share.

NAV changes daily due to fluctuations in prices of stock and bond funds in the market. NAV are important because

  1. NAV is used to determine the value of your belongings in mutual funds (multiply each share you own by NAV price)
  2. NAV is the price at which each new share is bought or redeemed.

The different fund NAVs are priced daily in newspapers or in funds websites. Mutual funds do not pay taxes over incomes coming from investments. Under the Internal Revenue Tax Code mutual funds serve as means to make incomes from investments go to shareholders in the way of interests or as dividends and profits and losses of capital. Individual investors pay taxes over distribution of incomes and profits over capital coming from mutual funds.

Shareholders receive monthly and annual statements showing buys and sales of shares, interest incomes, dividends and profits and or losses of capital and other relevant data that should be taken into account for tax purposes.

Besides investors that invest in mutual funds should inform themselves on NAV prices of shares bought and sold. This information is used to compute their profits and losses when shares are redeemed. Value of mutual funds increase when:

  • Earned interests and dividends in a fund investment are distributed to shareholders.
  • Fund managers sell investment stocks with a profit. The capital obtained from the sale is distributed to shareholders. If these values are sold with loss the lost capital is compensated with a profit from funds and the resulting profit and loss is distributed to shareholders.
  • NAV for shares increase.