Parting Ways: NAV and Market Price
Oftentimes ETFs are seen as a hybrid between stocks and mutual
funds, and thus feature pricing characteristics similar to both
investment types. Like mutual funds, ETFs have a net asset value
(NAV). The NAVs of both mutual funds and ETFs are calculated at
the end of each trading day, at market close. NAVs for both mutual
funds and ETFs represent the real value of the underlying securities.
The NAV is calculated by taking the total assets, deducting the
liabilities, and dividing by the total number of shares outstanding.
However, that’s where the similarities between the funds end. A
mutual fund’s NAV is the price that is paid to buy or sell the fund,
minus any commissions. No matter when an investor purchases
the mutual fund, the end-of-day NAV is the price that is paid. In
contrast, as soon as an ETF begins trading, its market price and
NAV may diverge. Therefore, the market price—or the price an
investor pays to buy the ETF, or gets when the ETF is sold—may
not necessarily equal the ETF’s NAV. Instead, the ETF’s market
price is determined by changes in the value of the underlying
securities, the forces of supply and demand and the opportunity
for arbitrage (which is explained below). The bottom line is that if
two investors purchase the same ETF on the same day, they may
end up paying different prices due to market fluctuations.
ETFs are subject to risks similar to those of stocks and may not be suitable for
all investors. Investment returns and principal value will fluctuate so that when
shares are redeemed, they may be worth more or less than original cost.
Securities are not guaranteed by any bank, are not insured by the FDIC or any
other agency, and involve investment risks, including the possible loss of the principal
amount invested.
RydexShares are distributed by Rydex Distributors, Inc., an affiliate of Rydex Investments.
Rydex Investments 9601 Blackwell Road Suite 500 Rockville, MD 20850
800.820.0888 Send us your comments
For more complete information regarding Rydex funds, call 800.820.0888 or click here for a prospectus. Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. The fund's prospectus contains this and other information about the fund. Read the prospectus carefully before you invest or send money.
Key Points to Remember
ETF market price is determined by the price of underlying securities, market supply and demand forces
and arbitrage opportunities.
An ETF’s net asset value (NAV) represents the value of the ETF’s underlying
securities as of market close.
Intraday Indicative Value is updated every 15 seconds and represents the approximate NAV throughout the
day.
Investors may purchase shares
at a premium or discount to the NAV.
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