There are two ways to earn a return on mutual funds: unit price appreciation and dividends or other disbursements. Calculating your total return means looking at the change in value over a certain period of time, taking both of these factors into consideration. For mutual funds, value is reported in terms of NAV (Net Asset Value). This figure is used to calculate total returns.

Annual return is the measure of how the mutual fund has changed in value over a 12-month period. The number is usually expressed in percentage terms for easy comparison.

For example, let's say you invest $10,000 today, and twelve months later your investment has grown to $15,000. The annual return on your investment is 50 percent. You determine your return by subtracting your original investment from its value after 12 months, then dividing the result by the original investment.

The value of a mutual fund unit is expressed in terms of net asset value (NAV). The total return is based on the increase in NAV, plus any dividends or distributions paid to investors. Let's say your mutual fund had a net asset value of $100 at the beginning of the year, and that during the year, investors received distributions of $5 per unit. At the end of the year the NAV is $120. First compute the return using the same approach as the regular return example.

Add the $5 distribution to the fund's ending NAV ($120), giving you $125. Subtract the original NAV from the ending NAV ($125 - $100), which leaves $25. This is your gain for the year. Divide the gain by the starting NAV ($25/$100) for the total return. Your total return is 25 percent.