To calculate the return from open-ended mutual funds Investors can apply the following equation and guidelines:
Profit from investment can be calculated as follows:
(RP+D-PP)
Symbol stands for:
a = Date of investment
b = Date of calculation of return or date of redemption
x = (b-a) means period of investment holding
PP = Purchase Price or NAV at the beginning of relevant year
RP = Redemption Price or NAV at the end of relevant year
D = Dividends received during the investment holding period or relevant year
The return can be worked out by dividing the profit from investment by the PP and then be annualized. Investors can work out the return for the entire holding period (i.e. x), or separately for each year.
Open-ended funds recover a sales charge (called sales load) from unit/ shareholders. Sales load is a certain fixed percentage of NAV. Some mutual funds recover the sales load when investors purchase the units, whereas others do when investors redeem the units. Mutual funds generally do not charge sales load on reinvestment of dividend. The shorter the period of investment, the greater will be the impact of the sales load. Maximum benefit can be derived from mutual fund investment by regularly investing, reinvesting the dividend and holding the investment for a longer period.
