MEASURING RETURNS

MEASURING RETURNS

TWO SOURCES OF INCOME

DIVIDEND PAID BY THE MUTUAL FUND

CAPITAL GAINS BY BUYING LOW AND SELLING HIGH

NO PRE-SPECIFIED ROI ON INVESTMENT

• MOBILISED FUND INVESTED IN MARKETABLE SECURITIES WHOSE PRICES FLUCTUATE
• ASSURED POSSIBLE ONLY IF THE SPONCER OR THE AMC PROVIDE EXPLICIT GURANTEE

COMPUTING RETURN

• PERCENTAGE CHANGE IN NAV
  
  
• SIMPLE TOTAL RETURN
  
  
• ROI OR TOTAL RETURN WITH DIVIDEND RE-INVESTMENT
  

PERCENTAGE CHANGE IN NAV

Example : 1 year investment
Nav at the beginning of the year Rs. 12.25
Nav at the end of the year Rs. 18.30
Percentage change =
(18.30-12.25)/12.25*100= 49.38%

Limitation :dividend distributed from MF not considered


PERCENTAGE CHANGE IN NAV
Example : periods other then a year
Nav on 1 jan 2004 :12.25
Nav on 30 june 2004 : 18.30
Percentage change =
(18.30-12.25)/12.25*100=49.38%
Annualised return
49.38*6/12=98.77%


TOTAL RETURN METHOD

Purchase price :12.25
Sale price : 18.30
Dividend received 5%I.e. Rs. 0.5 per unit
Rate of return =
(18.30-12.25)+0.5/12.25*100=53.47
Total return includes capital gains as well as dividend income


SIMPLE ANNUALISED TOTAL RETURN

Nav at beginning : Rs.12.25
Nav after 250 days :Rs 18.30
Dividend distributed : Rs 0.5
Simple annualized total return =
(6.05+0.5)/12.25*365/250=78.06%
- Represents return as per cent per annum
- Limitation : ignores dividend reinvestment


ROI/TOTAL RETURN WITH DIVIDEND REINVESTMENT

Dividends are reinvested at ex dividend NAV
Assume purchase of 100 units at Rs 12.25
Total investment Rs.1225
NAV of Rs 15 ex dividend of Rs 0.5
Dividend received is Rs.50 I.e. 100*0.5
NAV at end period is 18.30
No. of units reinvested : 50/15=3.3333
End period value of investment is
103.3333*18.3=1891
Roi is
((1891/1225)-1)*100=54.37%
Widely used by MF tracking agencies