Question

Discuss the components of the return an investor receives from a mutual fund investment. Not less than 250 words and please provide sources.

Answer 1

Mutual fund refers to a pool of saving those are invested in various types of securities to maximizing the returns for the investors and for mimimizing the overall risks. In other words we can say that mutual fund is a platform for the investors.

Components of the return an investor receives from a mutual fund investment are as follow;

1. Income & dividends paid by the companies;

As we know that amount of mutual funds are invested in various types of companies & firms for getting benefits of diversification. So investors will get income and dividends from the their invested money. Normally time to time companies & firms pays return as a dividend to the investors hence this is a mjor component of the return an investor receives from a mutual fund investment.

2. Capital gains / losses on sale of assets;

Capital gains or losses refer to the excess or deficit of sale price of the securities over purchase price. In other words we can say that at the time of sale of securities an investor will either receive capital gain or capital loss.

Thus capital gains or capital losses are the tyeps of returns an investor will receive at the time of sale of securities. Although this component of return is depend on the condition of market but it may generate some positive return as capital gain for the investors.

3. Capital appreciation of underlying assets;

Appreciation refers to the increase in the value of underlying assets. As we know that market values changes as per the condition of the market. So value of underlying assets also changes over the period of time. If value of underlying assets goes up then it is known as caital appreciation of underlying assets and it is a return for an investor.