![]() ![]() The portfolio holdings in a bond fund change over time while the market price (and yield) of those holdings are also changing. The 30-day SEC Yield approximates an annual income rate relative to the fund price on a particular day and assumes compounding of the most recent dividend payment. It doubles the compound income rate to approximate income earned over 12 monthsĭistribution yield describes income payments made over the prior 12 months, relative to the fund’s price on a particular day, with no assumed compounding of reinvested income.It compounds the income rate over a 6-month period.It assumes that the outstanding shares (represented by an average of the number of outstanding shares each day in the month) were all purchased at the maximum offering price on the last day of the month.It uses the income, net of expenses, at the end of a month (i.e.If applied to a bond fund that pays a monthly dividend, the 30-SEC Yield calculation does the following: This is a standardized calculation that all bond funds are required to use so that potential investors can compare funds based on a consistent method of calculating an income rate. The SEC developed what is referred to as the 30-day SEC Yield. In a rising rate environment, this can underestimate the income rate. In a falling interest rate environment, this can overestimate the income paid to shareholders. This makes the result backward looking, rather than indicative of the expected income going forward. ![]() A 30-day distribution yield is generally calculated by adding the trailing 12 months’ dividends per share, and dividing the sum by the fund’s month-end price. ![]() Distribution Yieldĭistribution yield is provided for many bond funds. It does not indicate the effect of compounding, in the event that the income received were invested at a similar rate, and it does not indicate the impact of a gain or loss on a bond that might be sold prior to maturity. Since the annual coupon interest on a bond is known, this calculation provides an accurate representation of the income rate that will be received based on the purchase price of the bond. If applied to an individual bond, the current yield would be equal to the annual dollar coupon interest divided by the price. Current YieldĬurrent yield is a very simplistic calculation. There are several calculations that may provide reasonable approximations. Due to these variables, there is no yield calculation that will accurately reflect the rate of income that will be received by an individual mutual fund investor over the period of their investment. Variations will occur within a bond fund over time, including the number of securities held, the percentage of the total holdings represented by each individual security, and the daily market price (and therefore, yield) of each individual security. The concept of holding an individual bond to maturity is seldom applicable within a mutual fund since the amount of fund assets invested in a particular bond may be increased or decreased, or the bond may be eliminated from the fund holdings, prior to the maturity date. The investment manager of a bond fund may continually buy and sell individual securities as money flows into, or out of, the mutual fund, and as individual securities become more or less attractive based on the objectives of the fund and changes in the financial markets. Fund Holdings and Markets Change DailyĪ mutual fund is a collection of securities in which a number of individual investors share ownership. This article provides an overview of mutual fund yields and helps explain the differences. The rate of income, or yield, produced by a bond fund is affected by several variables and may be calculated in a number of ways. There are a number of distinctions between bond funds to be considered, one of which is the rate of income generated by the fund’s portfolio. Investors looking for an income-producing investment may choose to invest in mutual funds that can invest in a wide variety bonds depending upon their stated objectives. ![]()
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