What is a good annual return for a mutual Fund?


Whether the annual return on a mutual Fund is “good” is a relative judgment, based primarily on the investment objectives of individual investors and General economic and market conditions.

Most mutual funds aimed at long-term investors to look for relatively smooth, steady growth with less volatility than the overall market. Historically, mutual funds, tend to Underperform compared to the average market in bull markets, but they are ahead of the market average during the bear markets. Long term investors generally have lower risk tolerance and, as a rule, are more concerned with minimizing risk in their mutual Fund investment than they are with maximizing profits.

That is a good average annual income for a mutual Fund, “good” is largely determined by the expectations of individual investors and the desired level of profitability. Most investors probably will be satisfied with the return, which approximately reflects the average yield of the market as a whole and consider the returns that meet or exceed that goal to become a good annual income. However, investors looking for higher returns will be disappointed that the level of investment return.

Economic conditions and market efficiency are also important factors in determining a good return on investment. For example, in the case of a strong bear market in the stock is reduced on average by 10-15%, the Fund is an investor who sold a 3% net profit for the year can be considered an excellent return. Under different and more favorable market conditions, investors would be very unhappy with the same level of profitability.

Annual income and yield

To get a clear picture of return of the mutual Fund over time, it is important for investors to understand the difference between annual income and yield. Annual income is defined as the percentage change of an investment over one year; the rate of return is the percentage change in investment, measured over time periods shorter or longer than one year, but said annual rate of return.

Annual Return

Being able to calculate the annual return of the company or other investment provides investors with the opportunity to analyze the figures for any year are investments. The annual yield calculation is more frequently used among investors because it is relatively simple compared to the yield. To calculate annual income, first determine the initial value of the investment at the beginning of the time period with the subsequent value of the investment at the end of the year. The initial price will be deducted from the final price to determine the change in investment in price over time.

What will change in price divided by the initial cost of the investment. For example, investments in shares of $50 on January 1, which increases to $75 by December 31 of the same year there is a change in the price of $25. This amount divided by the initial price of $50 results in 0.5, or 50% increase for the year. While the annual income provides investors with a General change in price in one year, the calculation does not take into account the volatility of the stock price over this period of time.


On the contrary, yield can be used in a variety of ways to assess the effectiveness over time.To calculate annual return, first determine the total income.This is the same calculation as annual income (ending investment price – the initial cost of the investment / initial cost of investment), but based on the full investment holding period, regardless of shorter or longer than one year.

From there, the annualized gross income can be determined by plugging the appropriate values in the following equation: (1+return)^1/n – 1. The variable N represents the number of periods of measurement, and the exponent 1 represents a block of one year is measured. For example, with a starting price of 1000 USD and the final price in $2500 for the seven-year period will have the total income 150% (2,500 – 1,000 / 1,000). The yield is 13%, with 7 to replace the variable N: (1 + 1.50)^1/7 – 1.

Bottom Line

Before investing in a mutual Fund, it is important for investors to understand their individual goals for investment over a specified period of time. Knowing the expected yield means that the investor can measure the performance of a mutual Fund for a certain period of time and to determine whether or not an investment performs in a manner that will meet their goals.

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