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Now since you have already read and understood(ho[efully) my previous 2 posts about Mutual Funds. Now I can go ahead in explaining what is little complex in understanding 'Total Returns' and 'NAV'.
For those who have not read previous posts about Mutual funds and NAV basics, following are the links(read them before continuing with this post
MF - basics|working|benefits
Net Asset value(NAV) basics
Starting with basics about what do you understand by 'total return', it stands for either 'Income/yield' or/and 'capital appreciation' in Mutual Funds. Capital appreciation is also referred as increase in NAV. Basically Capital Appreciation means if one or more of your fund's holdings is selling for a higher price than it was when the manager purchased it. If the manager sells the new, pricier stock or bond, then it is known as capital gain. 'Income/yield' from a Mutual Fund is calculated by adding the income distributions over the last 12 months and dividing that by the sum of the last month's ending NAV and adding any capital gains over the same 12-month period.
Hence we can say total returns in Mutual Funds is encapsulation of any changes in NAV caused by appreciation or depreciation of the underlying portfolio, payment of any income (yield) or capital-gains distributions, and reinvestment of those distributions. I'll explain it in a much simpler way so that newbies can understand it in a simpler way:
Let's say that you purchased 10 number of Mutual Funds with NAV of INR 10 each. After couple of months lets say NAV raised to INR 12. Now the M fund sells some of its winning stocks and makes a INR 2 per-share capital-gains distribution. It makes no income distributions. As a result, the fund's NAV falls to INR 10 again. Now your share of gain (INR 2 * 10 = INR 20) is used to purchase 2 more shares of Mutual funds at new NAV of INR 10. So now you have 12 shares of Mutual funds (a gain of 2 shares wrto your initial imvestment). So your total return in this case on investment of INR 10 (for couple of months period is INR 20) which is 20 percent of your initial investment, WHICH IS NOT BAD AT ALL, This return can grow further when you consider full year time cycle.
Hence I think now you would have a much clearer picture about Total returns and NAV in Mutual funds. Ask any querries in comment section and I would surely answer it ASAP.
Bookmark or follow the blog using email for getting Mutual Funds Investment tutorials in your inbox.
For those who have not read previous posts about Mutual funds and NAV basics, following are the links(read them before continuing with this post
MF - basics|working|benefits
Net Asset value(NAV) basics
Starting with basics about what do you understand by 'total return', it stands for either 'Income/yield' or/and 'capital appreciation' in Mutual Funds. Capital appreciation is also referred as increase in NAV. Basically Capital Appreciation means if one or more of your fund's holdings is selling for a higher price than it was when the manager purchased it. If the manager sells the new, pricier stock or bond, then it is known as capital gain. 'Income/yield' from a Mutual Fund is calculated by adding the income distributions over the last 12 months and dividing that by the sum of the last month's ending NAV and adding any capital gains over the same 12-month period.
Hence we can say total returns in Mutual Funds is encapsulation of any changes in NAV caused by appreciation or depreciation of the underlying portfolio, payment of any income (yield) or capital-gains distributions, and reinvestment of those distributions. I'll explain it in a much simpler way so that newbies can understand it in a simpler way:
Let's say that you purchased 10 number of Mutual Funds with NAV of INR 10 each. After couple of months lets say NAV raised to INR 12. Now the M fund sells some of its winning stocks and makes a INR 2 per-share capital-gains distribution. It makes no income distributions. As a result, the fund's NAV falls to INR 10 again. Now your share of gain (INR 2 * 10 = INR 20) is used to purchase 2 more shares of Mutual funds at new NAV of INR 10. So now you have 12 shares of Mutual funds (a gain of 2 shares wrto your initial imvestment). So your total return in this case on investment of INR 10 (for couple of months period is INR 20) which is 20 percent of your initial investment, WHICH IS NOT BAD AT ALL, This return can grow further when you consider full year time cycle.
Hence I think now you would have a much clearer picture about Total returns and NAV in Mutual funds. Ask any querries in comment section and I would surely answer it ASAP.
Bookmark or follow the blog using email for getting Mutual Funds Investment tutorials in your inbox.
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