How to Figure the Percentage Yield on Mutual Funds

Research your investments carefully.

There are many yield calculations applicable to mutual funds. These percentage yields, or returns on invested assets, are used to compare one mutual fund with another and to rate the effectiveness of the stated investment purpose of the mutual fund to its results.

Things You'll Need

• Spreadsheet program

Instructions

1. Use two important calculations to determine the results of the investment portfolio of any mutual fund. The dividend yield and the capital gains return combine together to report the total return of the fund. Total return is the best gauge of investment performance.

2. Open a spreadsheet program, and in column 1 insert the price per share of the fund. In column 2 insert the number of shares purchased. In column 3 multiply columns 1 and 2. This represents the total investment, or total dollars at risk.

3. Review the annual tax report the mutual fund sends to shareholders. Observe the dividend and capital gains distributions made to your account. These gains represent taxable events, and you are entitled to receive these distributions directly if you so desire. Create columns 4 and 5, and insert these amounts.

4. Use column 6 to divide column 4 by column 3. The result is a yield computation called the dividend yield. This represents dividend payments by companies owned by the mutual fund. Dividend yields are taxed as ordinary income for tax purposes.

5. Create a column 7 to input the results of dividing column 5 by column 6. This represents the gain in price of the mutual fund from astute investment. This capital gain (or losses in a bad year) may be kept by you or reinvested in the mutual fund. Taxes may be due on both short-term and long-term capital gains.

6. Compute the total percentage yield return of the fund by adding columns 6 and 7 together. This yield represents the comparison yardstick that should be applied to every fund.

7. Use the information gathered to measure the results of other performance. Remember that return is only part of the equation. Risk must be measured as well. Never invest based solely on total return. All investment returns must be risk-adjusted.

Tips & Warnings

• Compare your mutual funds to risk-free investments such as treasury bonds to measure performance on an absolute basis.

• Know that mutual fund returns are variable and not guaranteed.

References

• Morningstar: Understanding Total Return
• Globefund: Mutual Fund Returns

Resources

• Investment Company Institute