# How to Calculate Returns on your Mutual Fund

By | May 25, 2012
An integral part of financial planning is the regular and periodic evaluation of your investments. This is a golden rule which must be followed by investors at all times, irrespective of whether an investor invest in mutual funds, debt instruments, equities, commodities, or a combination of all these categories. If this is not done, then an investor does not know if his long-term objectives for investment are being accomplished or not. Besides, an investor may also bear the brunt of losses if he does not evaluate his fund on a regular basis, leading to poor and ignorant decision-making. Opting for debts like personal loans, home loans etc may become the only avenue to hunt down for finances to finance your propositions. It is a commonly known fact today that mutual funds provide investors with the best opportunities to achieve their goals with long-term planning across various asset classes, while offering the element of diversification at the same time. Historical evidence also provides for facts which prove that mutual funds are the best vehicle for consistent investments, which have also outperformed over their benchmarks and other asset classes and provide several other benefits. In order to draw maximum benefits out of them, it is critical for a mutual fund’s performance to be evaluated on a regular basis in the medium term. This helps an investor exit a fund at the earliest, in case there is a drop in the performance of such a fund.
Analyze the historical returns made by the mutual fund to evaluate its returns and its performance over a specific time frame. Study the dividend, capital appreciation and other factors carefully before making an investment. This can be done by calculating the point-to-point or absolute returns of the fund. It is an easy method which helps investors calculates the returns of a fund. It involves the consideration of the net asset value of the fund at the beginning and at the end of the holding period. Returns are then calculated by dividing the absolute change in the net asset value by the net asset value on the starting date of the fund. It is applicable to all types of funds in the market. However, this formula does not hold true if an investor invests in the dividend option scheme of a fund as the net asset value of the scheme falls as soon as the dividend has been paid out. In such a scenario, it is advisable to use the total return method for calculating your returns.