Net asset values and accumulated unit values both come into play when you own mutual funds or other types of funds. NAVs refer to the value of the fund's holdings. However, if you own those funds within a variable annuity account, you see the value that you build up in your annuity -- the AUV -- rather than the pure value of your mutual funds.
Mutual Fund Values
Mutual funds are collections of stocks that you can buy instead of building your own portfolio of shares of individual companies. The mutual fund gets priced relative to the prices of its assets through the NAV. NAVs are calculated daily by adding up the closing prices of all of the assets in the fund's portfolio, adding any other assets and subtracting any other liabilities. The total value then gets divided by the number of shares outstanding to find the NAV on a per-share basis.
When you own mutual funds in an annuity, you don't own your shares. Instead, you own a piece of a separate account owned by the insurance company that owns the annuity. That separate account is where the insurance company pools your funds with those of other investors and uses it to buy funds or other investments. While the the value of the separate account is tied to the value of the investments that it holds, other factors contribute to that calculation.
Accumulated Unit Values
AUVs are calculated by combining three factors. AUVs are based on the NAVs of the shares held by the account, as well as by the value of any dividends that remain in the account. From that sum, the insurer subtracts the account's separate account charge. The value is then divided by the number of units of the account to find the AUV. You may have different numbers of account units than you have mutual fund shares. Dividends don't reduce the value of an AUV, while they do reduce NAVs, because the fund has less money after it pays you the dividend.
The Purpose of Annuities
Given the complexity of converting NAVs to AUVs and figuring out the true value of your account, an annuity might not seem to make sense. You also have account charges subtracted from your variable annuity that reduce your total returns. When you hold your mutual funds in an annuity account, however, all of your taxes are deferred. The dividends go into the account and not to you, as do any profits from selling and buying shares of the mutual funds. You don't pay taxes on your annuity until you actually take money out of it.
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