Do you understand your investment returns? Decoding Mutual Fund Distribution & Investment Return

Dec 05, 2019 | Wendy Chung


Every year it is like clockwork... Around end of December, any mutual fund positions in a portfolio, there will be Year End Distribution.

Once this happens (usually towards latter half of December), we get questions from (mainly new) clients asking how come their investment for these mutual funds "don't do so well".


We thought this year we would like to provide some education around understanding your investment returns and mutual fund distribution.

The reason why question on performance arises for mutual funds (especially after distribution), is because when clients only view their investments online or base on investment alone. Often investors determine their investment “return” and "investment growth" based on only looking at the “BOOK COST” and “MARKET VALUE”.

With portfolios that hold mutual funds, strictly looking at the difference between BOOK COST and MARKET VALUE of an investment likely is deceiving. By only taking the difference between the two, you have not taken in consideration of the mutual funds distribution that you've collected over the years.

Our friends at Edgepoint has made a great video to “DECODE” your investment returns. In a nutshell, this is the reason that the NET INVESTED AMOUNT is more important than the BOOK COST. This is one of the reason for our clients, we focus on the Portfolio Report instead of investment statement when we review performance.

The Portfolio Report provides you with the view of your actual because it always indicates the "NET INVESTED AMOUNT" (i.e. your own capital amount that you've put towards the portfolio). It will show you how your portfolio has grown year-over-year based on various investment income - interest, dividends and capital gain.

This is different compared to looking at an investment statement. It is often hard for investors to track how much of their own capital they have put into the portfolio, especially when you make contributions on an ongoing basis. On the investment statement, there is only reporting of BOOK COST. This becomes deceiving because every time when you receive a mutual fund distribution, it "bumps up" the book cost. This can misguide you on how much of your own capital you've put into the portfolio.

If you would like to understand how distributions work, please check out this link. And our RBC Global Asset Management has done a great job to clarify what constitutes book value. Please click here for further information.