How is ETF Price Calculated? Understanding Market Price vs. NAV
Exchange Traded Funds (ETFs) have become a popular investment vehicle because they offer the diversification of a mutual fund with the trading flexibility of a stock. But have you ever wondered how their price is actually determined? Unlike a standard mutual fund where the price is fixed at the end of the day, an ETF's price changes throughout the trading session.
How is the value of an ETF determined?
Since ETFs are listed on recognized stock exchanges, they trade in real-time. This means their value at any specific moment is primarily determined by supply and demand in the market. If more people are buying the ETF, the price may rise; if more are selling, it may fall. Investors can buy or sell units of an ETF as easily and quickly as they would equity shares of listed companies.
What is an ETF's NAV?
While the market price fluctuates, the ETF has an intrinsic value known as the Net Asset Value (NAV). The Net Asset Value represents the market value of each unit of the scheme. It is calculated by taking the total value of the underlying assets (stocks, bonds, or gold) held by the fund, subtracting liabilities, and dividing by the total number of outstanding shares.
Calculating the value of an ETF
There are essentially two "prices" for an ETF:
- Market Price: The price at which you can buy or sell the ETF on the exchange right now.
- NAV: The actual value of the underlying securities, typically calculated at the end of the trading day.
Why do ETF prices remain close to their NAV?
Ideally, the market price and the NAV should be identical. However, because ETFs trade real-time, slight differences can occur. Market makers and authorized participants actively work to keep these two figures close through a process called arbitrage. If the ETF price deviates too far from the NAV, these participants step in to buy or sell the underlying assets, bringing the price back in line.
Conclusion
Understanding the difference between market price and NAV is crucial for ETF investors. While they generally track closely, keeping an eye on these metrics ensures you are paying a fair price for your investment.
Frequently Asked Questions (FAQs)
1. Does the NAV of an ETF change during the day?
The actual NAV is usually calculated at the end of the trading day. However, an "indicative NAV" (iNAV) changes throughout the day based on the real-time value of the underlying assets. This NAV is published on the website of the AMCs. In case of Zerodha Fund House, you can find the iNAVs here.
2. Why is my ETF trading at a premium?
This often happens during high demand. If many investors rush to buy a specific ETF, the market price might temporarily rise above the actual value of the assets it holds.
3. Can I buy an ETF at the NAV price?
Generally, retail investors buy at the market price on the exchange, not the NAV. However, institutions dealing directly with the fund house transact based on NAV-related mechanisms.
Disclaimer - Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully
Published on Dec 17th, 2025