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The following article was published in our article directory on March 12, 2012.
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Mutual Funds Rate of Returns

Article Category: Finances

Author Name: chickie maxwell

Rate of return is that one thing that you need to constantly take a look at as an investor. You need to consider it and thoroughly learn what it is before you invest in a company or anything else for that matter.

One of the popular options that you can look at to invest in currently is mutual funds. But what is the definition of mutual funds? Simply put, a mutual fund refers to the collective pooling of money by various, more often than not unacquainted investors to buy different stocks, bonds, securities and other money market instruments.

There are actually different types of mutual funds in the money market today . You have the ETF's or the exchange traded funds. ETF's are very much like stocks where in you can trade them within the day and they hold a basket of money market investments as well. They have relatively lower cost to buy than other mutual funds and they are more tax efficient.

The other type of mutual funds is focused funds, wherein the mutual fund focuses investment on one specific class of assets. The third type is mutual funds that has a wide array of assets in its basket, spreading investment in various instruments.

In computing the rate of return for mutual funds, it is first critical to understand how a mutual fund is valuated. A mutual fund uses NAV or net asset value to determine its price. For example, at the start of last year, the NAV of the ABC fund was at $20 per unit. Within the year, $1 was made per unit. By the end of the year, the NAV rose to a respectable $21 per unit.

To compute for the overall total return of the fund, add the year-end NAV with the add-on distribution within the year. Then, subtract the original start of the year NAV. You will arrive at the year's profit. Then, divide that with the starting NAV and multiply it by 100 to get the percentage. In this example, the computation will be:

{ | Start of the Year NAV $20} x 100 = 10%

Do note that this is the fund's total return and not your own rate of return. That has a different computation. For example, you invested $100, you received distributions of $20 which you reinvested. In this case, the computation for the return is:

{(Initial investment $100 + reinvested distribution $20) - Initial investment $100 | Initial investment $100}100 = 20%

An alternative that you can explore , which promises a higher return rate compared to the usual 3% to 5% you can get from mutual funds is Prosper's peer-to-peer money lending scheme. They make a way to bridge those with money to invest and those people who need to borrow for them to start their small businesses or to fund other profitable expenses. Call them at 1-866-615-6319 as they offer a seasoned rate of return of as high as 10.46%.

Keywords: rate of return

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