How do I Calculate ROI on Mutual Funds?
Return on investment measures the increase in the amount you put into a mutual fund as a percentage of the investment. Reporting the return as a percentage controls for the size of the investment, so a $100 investment that earns $50 will have a higher ROI than a $1,000 investment that earns $100. However, not all ROIs are created equal. For example, an ROI of 20 percent might sound great, until you learn that it took the fund 15 years to earn that return. When calculating the ROI for a mutual fund, you need to account for both changes in the net asset value and distributions to shareholders.
Subtract the mutual fund's initial net asset value from its ending net asset value. For example, say you bought the mutual fund and then sold it six months later. If the net asset value was $14 when you bought it and $15 when you sold it. The net asset value increased by $1.Step 2
Add the amount of any distributions received. In this example, if you received a 25 cent payment, the total increase would be $1.25.Step 3
Divide the total increase by the initial value to figure the holding period ROI. In this example, divide $1.25 by $14 to get 0.0893, or 8.93 percent.Step 4
Add one to the holding period ROI if you want to convert the holding period ROI to an annual ROI. In this example, that means adding 1 to 0.0893 to get 1.0893.Step 5
Divide 1 by the number of years in the holding period. In this example, divide 1 by 1/2 to get 2 because you held the fund for six months.Step 6
Raise the Step 4 result to the power of the Step 6 result using exponents on a calculator. In this example, raise 1.0893 to the second power to get 1.1866.Step 7
Subtract 1 from the result to find the annualized return on investment for the mutual fund. In this example, subtract 1 from 1.1866 to find the annualized return on investment equals 0.1866, or 18.66 percent.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."