What Is Mutual Fund Yield?

Mutual fund yield, also called the distribution yield, is the fund's income return given as a percentage of its market price. It measures the income the fund generates from stock dividends and interest on bonds. The yield depends on the fund's market value and changes in the annual dividends of the stocks it holds. Most funds also report their rolling 30-day U.S. Securities and Exchange Commission (SEC) yield, which is standardized across the industry.

The mutual fund yield is typically calculated daily with the fund's net asset value (NAV), determine꧑d after the market closes. 

Understanding Mutual Fund Yield

Mutual fund yield can be a leading metric for income investors to consider. This yield is typically calculated by including any income for the fund in a given year. Reviewing the fund's income from dividends and interest, its board of directors determines the dividends the mutual fund pays to its investors.

All types of mutual funds pay dividend distributions, so investors seeking high-yield mutual fund investments have many options. In an equity mutual fund, the distribution is usually taken from dividends paid by the stocks in the portfolio. In a bond mutual fund, the dividend distribution often includes interest paid on bond investments in the portfolio.

Mutual fund yield can be given as a forward yield or a trailing 12-month yield. The forward mutual fund yield multiplies the most recent dividend distribution by the fund's expected one-year dividend schedule. The trailing 12-month figure sums up the dividends paid over the past year and divides them by the value of one mutual fund share. Mutual funds typically pay monthly or quarterly distributions.

Mutual Fund Yield vs. Total Return

Investors in high-yield mutual funds should review how their funds calculate the yield. Platforms might give different figures for the yield since they use varying methods. The best all-around assessment of a fund’s performance is its 澳洲幸运5开奖号码历史查询:total return. This differs from yield as it includes all dividend distributions, interest, and capital gains, accounting for any changes in the fund's sh🐬are price. In contrast, yield typically reflects only the income generated from dividends and interest. Therefore, while yield provides a snapshot of the income generated, total return gives a comprehensive view of both income and capital appreciation over a specific period.

Example of Fund Yield

Suppose a mutual fund is $20 per share and paid $0.04 in monthly dividends the past year. The trailing 12-month mutual fund yield is calculated by dividing the ann🙈ual dividends paid by the shareﷺ price:

• $0.48 ÷ $20 = 0.024, or 2.4%. 

However, you might see instead the forward mutual fund yield. Suppose the mutual fund priced at $20 per share just increased its monthly divi꧋dend to $0.05. The forward mutual fund yield is calculated by multiplying $0.05 by 12 (for the number of months) and dividing that by the share price:

• $0.60 ÷ $20 = 0.03 or 3%.

The SEC Yield

An issue with di💯stribution yields is that mutual funds might use different calculations to determine their figures. The SEC has a standard measure that most funds report on their platforms to provide investors wit💫h apple-to-apples comparisons.

The SEC yield allows investors to compare the income-generating potential of different funds. However, it's not the same as the simple yield and total return.

It's calculated using the net investment income (NII) per share for the last 30 days and annualizing it. This is the forward yield we already discussed💝. Like that simple yield, the SEC yield focuses on income, excluding capital gains or losses from its calculation. However, the SEC's figure deducts the fund's expenses (fund management fees, administrative costs, and other associated expenses), which most advisors argue provides investors with a better view of your potential earnings from a mutual fund. It doesn't do you much good if fees eat up the extra dividend earnin🐟gs a fund provides.

While the SEC yield can be found for most mutual funds, it's especially valuable for bond funds. The reported interest income for the previous 30 days in the present yield environment is very important for assessing what you can expect from these funds.

Those who invest in bond mutual funds are typically focused on income. So, the SEC yield is also a priority for them, unlike those invested in equity funds, who might expect income from the capital appreciation of their fund's stocks. One problem of the SEC yield—like other ways the yield is calculated—is that it's based on lagging information. If the interest rate or market environment changes, your actual returns might not look like the SEC yield originally suggested.

Example of SEC Yield

Sup꧅pose♎ a mutual fund holds a portfolio of bonds that has generated $100,000 NII over the past 30 days. The fund has 1,000,000 shares outstanding, and its net asset value (NAV) per share is $10.

The SEC yield is caꦦlculated first by ဣcomputing the daily NII per share:

• $100,000 ÷ 30 days ÷ 1,000,000 shares = $0.003333 per share per day

Next, you n🧜eed to annualize the daily NII per share:

• $0.003333 × 365 days = $1.2167

Third, you subtract any fund expenses like the management fees and administrative costs. Let's use an expense ratio of 0.5% (or $0.05 per share, given the $10 NAV per share) as our example:

• Net annualized investment income per share = $1.2167 - $0.05 = $1.1667 per share

Next, you divide the annualized NII per share by the current NAV to get the SEC yield:

• SEC yield = $1.1667 ÷ $10 = 0.11667 or 11.67%

This means that if the fund's yield remains consistent and expenses stay the same, an investor could expect to receive about $11.67 in net income distributions annually for every $100 invested in the fund.

Some High-Yielding Mutual Funds

Investors have many income-paying mutual funds from which to choose. Below are two mut𒆙ual funds ꦕwith high yields.

Vanguard High Dividend Yield Index Fund (VHYAX)

The Vanguard High Dividend Yield Index Fund tracks the holdings and return of the FTSE High Dividend Yield Index. As of the beginning of the second quarter of 2024, its 30-day SEC dividend yield was 2.76%.

T. Rowe Price Emerging Markets Bond (PREMX)

The T. Rowe Price Emerging Markets Bond mutual fund invests in bonds from emerging markets. As of the second quarter of 2024, its 30-day SEC standardized yield was 5.89%.

The Bottom Line

Mutual fund yields, generally derived from stock dividends or bond interest, are important for income investors. These can be found on platforms and in prospectuses for mutual funds as forward, 12-month, and SEC yields, giving you an estimate of what income you can expect from them. However, the total return is the metric that generally provides the most comprehensive view of a fund's performance.