TOTAL RETURN

The total return is the sum total of a fund's growth.

It includes capital appreciation (or loss) of its net asset value, and current income (ordinary dividends and capital gains dividends). Here is a hypothetical example:

Return The XYZ Fund Current Income $25 Capital Gain $50 Total Return $75

Because losses are figured into total returns, it is possible to have a total return that is negative, despite dividends. For example:

Return The XYZ Fund Current Income $25 Capital Gain -$50 Total Return -$25

Total returns are also calculated on shares that have been sold by the shareholder, in which case they include capital gains (or losses) and dividends earned on the shares prior to their sale.

Funds usually prefer to express total returns in terms of percentages. This makes it easier to compare fund performances. As an example, if a fund appreciates 10 percent during a given year and it has a 6 percent dividend yield, then its total return will be 16 percent. If a fund's total return is less than its yield, then there has been a loss. Specifically, the net asset value has dropped. For example, suppose a fund with a 9 percent yield has a 2 percent total return. We can see that its net asset value has dropped by 7 percentage points.

If you have ever puzzled over a payment called "return of capital," you will want to read the following section.