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Total Return

With any kind of investment, investors are always interested in finding out what their total return is at some point. After all when you put your money to work, you always want to know how hard your money is working for you. With some investments calculating the return is straight forward. For example with most bonds, the yield can tell you what your expected return is. With others such as stocks, you would simply calculate the difference between the price paid and current price and divide it by the price paid. Multiply the result by 100 and you arrive at the return ratio expressed in percentage points. With others, such as options, calculating your total return becomes more difficult, especially if you engage in more complicated trades such as selling covered calls.

With mutual funds you can always consult the prospectus to determine how well (or poorly) they have delivered in the past. The way the return on a fund in a given period is calculated is as follows:

Change in NAV + Distributions (income and capital gains) / NAV at start of period.

So if you invested in a fund with a NAV of $50 per share in the beginning of the year, and at the end of that year you have received $1 per share in income dividends, $19 per share in capital gains distributions, and the NAV is now $40 (barring any splits or mergers), your return for that year would be:

($40—$50) + $1 + $19 / $50 = 0.25 or 25%.

A fund prospectus usually contains a section indicating its total annual returns for the past 1, 3, 5, and 10 years as well as its annual …