Mutual funds rate of return

Return on an investment is usually measured over a certain period and include the sum of capital appreciation and income generated which is then divided by the original amount to be used in investment. This is usually expressed as a percentage. This is usually referred to as the total return. This concept is a little different with the return associated with mutual funds. The relationship between a fund’s net asset value, capital gain and yield distribution are usually confusing even to experienced investors. Calculation of the total return is usually confusing and when the concept of comparing how the total return is achieved for both stocks and mutual fund one gets a better understanding of the rate of return associated with mutual funds.

Stock total return

When using an example of shares which have been purchased by YJT company which were purchased at $ 30 on an annual basis, this price will fluctuate but it might close the year at $ 33. This represents a 10 percent return rate on the investment. Things get better since this company paid an annual dividend of $ 1 per share. This dividend usually equals an additional of 3.3% of return. Adding this to the capital appreciation of 10%, the income return of 3.3 % gives us a one-year total return for the company stocks of 13.3%. It is worthy to note than unless the shares are sold the capital appreciation remain in the stock price.

Fund Total Return

Explaining the concept of total return rate of mutual fund is a bit complex. When we begin with a share of ABD fund, which has been purchased at a net asset value of $ 16 per share. A fund’s NAV is usually derived by dividing this value of portfolio securities, less any fee, which has been accrued, and expenses by the total number of funds shares outstanding. The following is an illustration of this

The fund’s cash and cash equivalent = $ 200,000 it stock holding at market price is

10,000 shares of company Y @ $ 50 =500,000

20,000 shares of company J @ $ 30=600,000

50,000 share of company z @ $ 8=$ 400,000

The total market value for this stock holding will be = $ 1,500,000

This fund will have a total fund asset of $ 1,700,000 you less the fund’s liabilities of $ 100,000 the fund’s total net assets will be 1,600,000. This fund will achieve a total share outstanding of 100,000

It is worthy to remember that mutual fund which are priced once a day. This is usually at the end of the day. This is unlike stocks where prices are moved y supply and demand forces of the market place.