Seeing that I've been getting lots of questions from my family and friends regarding how we can calculate our capital gains/losses from investing in mutual funds, I've decided to post about 'Calculating your capital gains'. First off, there are 3 elements in the formula that we have to get ourselves familiar with.

1. NAV (Net Asset Value)

Your NAV is normally stated in your periodical statements (depending on how frequent your fund manager updates you) as the current value of your fund. It will include your principal (explained below) amount, the capital gains/interests and the reinvestments of dividends (if any).

2. P (Principal Amount Invested)

This is the total amount of money you have put in. However, it does not include any past interest gained from the fund and any dividends reinvested. Only the money you have taken out of your pocket to invest.

3. N (Number of Years)

Because interest is always stated as 'per annum' meaning yearly, N means the total number of years you have kept this fund under your portfolio. This way, we will be able to gauge how well your fund is performing compared to what I would call 'safe' investments (Fixed Deposits, Saving Accounts).

Here's the formula:-

[(NAV - P)/P]/N

I know that this may look really complicated for people who are not familiar with financial terminology but do not fret, as I will explain to the best of my abilities below. If you still do not understand or require further explanations feel free to drop a comment and I will respond asap.

In words, it would simply mean dividing the net of your NAV less P against P. This will show you how much in monetary value you have gained so far. (Ie: NAV = $10,000.00, P = $8,000.00. So, the net of NAV less P would be =$10,000.00 - $8,000.00 = $2,000.00.) We will then divide this with P. By doing this, we will be able to know how much in percentage we have gained with the total amount of money we have invested so far. (Ie: $2,000.00/$8,000.00 = 0.25 = 25%). Now, assuming that you have had this fund active for 5 years, this will simply mean that your N = 5. So, 25%/5 = 5% p.a. The 5% tells you that your fund had yielded a 5% return per year.

Hope that this helps. =)

1. NAV (Net Asset Value)

Your NAV is normally stated in your periodical statements (depending on how frequent your fund manager updates you) as the current value of your fund. It will include your principal (explained below) amount, the capital gains/interests and the reinvestments of dividends (if any).

2. P (Principal Amount Invested)

This is the total amount of money you have put in. However, it does not include any past interest gained from the fund and any dividends reinvested. Only the money you have taken out of your pocket to invest.

3. N (Number of Years)

Because interest is always stated as 'per annum' meaning yearly, N means the total number of years you have kept this fund under your portfolio. This way, we will be able to gauge how well your fund is performing compared to what I would call 'safe' investments (Fixed Deposits, Saving Accounts).

Here's the formula:-

[(NAV - P)/P]/N

I know that this may look really complicated for people who are not familiar with financial terminology but do not fret, as I will explain to the best of my abilities below. If you still do not understand or require further explanations feel free to drop a comment and I will respond asap.

In words, it would simply mean dividing the net of your NAV less P against P. This will show you how much in monetary value you have gained so far. (Ie: NAV = $10,000.00, P = $8,000.00. So, the net of NAV less P would be =$10,000.00 - $8,000.00 = $2,000.00.) We will then divide this with P. By doing this, we will be able to know how much in percentage we have gained with the total amount of money we have invested so far. (Ie: $2,000.00/$8,000.00 = 0.25 = 25%). Now, assuming that you have had this fund active for 5 years, this will simply mean that your N = 5. So, 25%/5 = 5% p.a. The 5% tells you that your fund had yielded a 5% return per year.

Hope that this helps. =)

## No comments:

Post a Comment