What is Return on Mutual Fund and Why Should You Care?
If you're putting your hard-earned money into a mutual fund, you definitely want to know how well it's performing, right? This is where the Return on Mutual Fund (RMF) comes in. RMF tells you the percentage increase in the value of your mutual fund, including any distributions (like dividends) you've received over a given period.
Think of it like checking the growth of a tree you planted. You don't just want to know how tall it's grown; you also want to consider the number of fruits it has borne. That's essentially what RMF measures.
Why should you care? Knowing your RMF helps you to:
- Evaluate the performance of your investment
- Compare different mutual funds
- Make informed financial decisions
No one likes surprises, especially when it comes to money. Understanding RMF keeps you in the know about how well your investments are doing.
How to Calculate Return on Mutual Fund
Calculating the RMF might sound like rocket science, but don't worry - it's actually pretty straightforward. The formula we use is:
[\text{RMF} = \frac{(\text{Current Value} - \text{Initial Investment} + \text{Distributions})}{\text{Initial Investment}} \times 100]
Where:
- Current Value is the current value of the mutual fund ($)
- Initial Investment is the initial amount you invested in the fund ($)
- Distributions are the total distributions received during the holding period ($)
Here's a simple breakdown:
- Initial Investment: This is the amount of money you initially invested
- Current Value: This is how much your investment is worth now
- Distributions Received: These are dividends or other payouts you've received during the period you've held the investment
Calculation Example
Let's walk through an example to see how this works in real life.
Example:
- Initial Investment: $5,000
- Current Value: $6,500
- Distributions Received: $300
Plug these values into the formula:
[\text{RMF} = \frac{(6500 - 5000 + 300)}{5000} \times 100]
First, calculate the numerator:
[6500 - 5000 + 300 = 1800]
Now, divide by the initial investment:
[\text{RMF} = \frac{1800}{5000} \times 100 = 36%]
So, your RMF is 36%. That means your mutual fund has grown by 36% including all the distributions received.