A mutual fund is an investment that pools together investors’ money to buy investments, such as stocks or bonds. You can measure a mutual fund’s performance by calculating its return on investment, or ROI, which measures the percentage the mutual fund’s value has grown or declined since you purchased it. A higher ROI represents a higher profit. A mutual fund’s ROI can increase due to a rise in price, the distribution of dividends and the distribution of capital gains, which are the profits generated when the mutual fund sells investments for more than it bought them.
1. Determine from your records the net asset value (NAV) you paid for a mutual fund, the total dividend distributions per share you have received and the total capital gains distributions per share you have received. NAV is a mutual fund’s price per share. For example, assume you bought a mutual fund for a $20 NAV and have received $2 per share in dividend distributions and $5 per share in capital gains distributions.
2. Determine the current NAV of the mutual fund from the financial institution from which you bought it, such as your broker. In this example, assume the mutual fund’s current NAV is $25.
3. Subtract the NAV for which you bought the mutual fund from its current NAV. In this example, subtract $20 from $25 to get $5.
4. Add together the Step 3 result, the total dividend distributions and the total capital gains distributions. In this example, add $5, $2 and $5 to get $12.
5. Divide your result by the NAV for which you bought the mutual fund. Multiply this result by 100 to calculate the mutual fund’s ROI as a percentage. A negative ROI represents a loss on the mutual fund, while a positive ROI represents a profit. Continuing with the example, divide $12 by $20 to get 0.6. Multiply 0.6 by 100 to get a 60 percent ROI on the mutual fund.
- Morningstar: Mutual Funds
- Brigham Young University, Marriott School: Return on Investment
- Mutual Funds -- An Introduction to the Core Concepts; Mark Mobius