How to Estimate Total Return

How to Estimate Total Return

A simple way to figure out how much money you’re really making

Just following your mutual fund in the newspaper won’t tell you how you’re really doing. To find out a fund’s total return, you need to know not only the fund’s net asset value over a given period of time, but also the distributions per share of dividends and capital gains during that period.

The quickest – and certainly the easiest way to learn your fund’s total return may be to simply ask the fund via its toll-free number or email. Before you can estimate a fund’s one-year return yourself, you need to know three things:

The fund’s net asset value per share a year ago.

Its NAV now.

Distributions per share of dividends and capital gains in the interim.

You should be able to find all this information on your account statement. You can take up distributions per share in different sources.

Here’s how to perform the calculation: As of January 31, year 01, Terminator Fund’s net asset value was $64.67 per share. A year later, its NAV was $73.65. During the year, it distributed $7.25 per share in income and capital gains. Therefore, subtract the beginning NAV from the ending NAV: $73.65 – $64.67 = $8.98.

And add to that all the distributions: $8.98 + $7.25 = $16.23.

How to estimate total return. Photo by Elena

The result gives you the total return in dollars. Now convert this dollar amount to a percentage by dividing the total return by the starting NAV and multiplying by 100.

$16.23 + $64.87 X 100 = 25.1%

Other, more complex, formulas that are figured by computer may produce a slightly different answer, but this estimate is close enough.

Managers Who Really Manage

Many investors wonder whether to ditch their fund or take a chance with a new manager. After all there is no way to test a mutual fund manager’s record, even if rating systems exist which help investors figure out which fund managers stand out and which don’t. Some of these systems correlate funds’ results specifically to their managers. These rankings compare the record of every manager who has been running a fund for at least two years against the records of other funds that invest in the same kind of securities – corporate bond funds or growth funds, for example. The ratings are described as a percentage of total return the manager has achieved above or below other managers in his basket of securities.