Saving & investing
Mutual funds and ETFs: Definition, Formula and Example
Mutual funds and ETFs pool investors’ money into portfolios; their trading and pricing arrangements differ.
Scope: General financial concept; examples are hypothetical.
Other names and related labels: Exchange-traded funds; Pooled investment funds.
How it works
Traditional open-end mutual fund shares are bought or redeemed at the next calculated net asset value, subject to applicable charges. Retail ETF shares trade on an exchange during the day at market prices that can differ from NAV. Either wrapper may use active or index-based management.
NAV per share = (fund assets − fund liabilities) / shares outstanding
NAV is a portfolio accounting value. It does not remove transaction costs, fund expenses or the risk of investment loss.
A fund with $10.2 million of assets
Assume $200,000 of liabilities and one million shares.
- Net assets: $10,200,000 − $200,000 = $10,000,000.
- NAV per share: $10,000,000 / 1,000,000 = $10.
NAV is $10 per share; an ETF’s exchange price need not be exactly $10.
All assets and liabilities valued consistently at the same time.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
The wrapper does not establish diversification or return
A narrowly focused ETF or mutual fund can be concentrated. Expense ratios, trading spreads, sales charges and tax treatment differ. A growth calculator does not reproduce an actual fund’s holdings, NAV or trading history.
Explore with a calculator
- Mutual Fund Calculator
Project hypothetical fund balances using the stated return and cost assumptions.
- Investment Fee Calculator
Compare the modeled effect of fees without deducting them twice.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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