How are mutual fund returns calculated? With an example?

Mutual fund returns are calculated based on the change in the Net Asset Value (NAV) over a specific period, alongside any dividends or distributions received. The formula used for this calculation is:

Return= (Ending NAV−Beginning NAV + Dividends) × 100

For example: consider you invested in a mutual fund with a starting NAV of ₹100. After one year, the NAV rises to ₹120, and the fund pays out a dividend of ₹5 per unit. Using the formula, we can calculate the return:

• Ending NAV = ₹120
• Beginning NAV = ₹100
• Dividends = ₹5

Here it is with the numbers:

Return=(120−100+5 divided by 100)×100=25%

Thus, your investment generated a 25% return over the year, factoring in both capital appreciation and dividends received. This calculation helps investors understand their investment performance and make informed decisions about future investments.