Mutual Fund Yield Versus Return

You make money two ways with mutual funds.

You make money two ways with mutual funds.

All you want to know is how much money the mutual fund has made its investors, yet you find completely different numbers for yield and return. Mutual fund reports don't use the terms "yield" and "return" to indicate the same thing. The two terms both deal with share growth and value -- but determining a mutual fund's return entails a combination of its yield with its price bumps.

Yield

"Yield" means how much the mutual fund has paid in interest and dividends. Bonds usually pay interest, and some stocks pay dividends. You can find the yield figure for the year-to-date, the last three years, the last five years and the last 10 years. This shows you what kind of income the fund's holdings have produced. If you're investing for income, look for a high yield when researching mutual funds.

Return, Part One

You might hope that "return" has nothing to do with "yield," for clarity's sake - but no such luck. The return on a mutual fund has two parts. The first is the growth in value of shares. When mutual funds do well, investors show a higher demand, and this raises the price of a share. If you already have shares, you'll see the value of your shares going up -- you have more money. For example, if you own 1,000 shares you bought at $12 and they go up in value to $14, your original $12,000 investment would be worth $14,000 if you sold at that point.

Return, Part Two

The "return" figure adds the yield to the increased share value. The mutual fund provides the return figure so you can see how much money you would have made for any given period with both increased value and interest or dividends. With share prices going up and interest or dividends paying well, you have a positive return on a mutual fund.

Total Return

When a mutual fund reports its "total return," it assumes that investors put all of their yield income into new shares. Someone who reinvested all of the dividends or interest back into the mutual fund would get the total return. If you don't reinvest your interest or dividends, you won't make quite as much as the total return figure indicates.

 

About the Author

Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.

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