Are you making profits?
The most accurate measure of a mutual fund's performance is its gross profit or loss. It is the total redemption value minus the capital invested. It's typically reported as percentage return and is derived by dividing the gross profit by the amount of your initial investment.
How can you know whether you have profitted or not? It's simple. This is how you calculate.
You invested RM12,000 into fund ATC at a unit price of RM0.50 a year ago. This purchase will result in your having 24,000 units of the fund. If the manager's current buy price is RM0.52, your current value will be: 24,000 units x RM0.52 buy price per unit = RM12,480. This means your gross profit is RM480.00.
Your gross profit is then: RM480 / RM12,000 = 4%.
If your investment was made 2 years ago and the gross profit is the same i.e. 4%, then your annualized profit is approximately: 4% / 2 years = 2% per annum.
Gross profit % and Annualized profit (ROI% p.a.)
Gross profit is profits without consideration of the duration of investment.
Annualized profit: When the investment duration is for periods longer than a year, the annualized profit is measured by dividing the gross profit with the number of years invested (as in the example above).
Among the key factors that influence gross profit are:
- the direction of the overall market or markets in which the fund is invested,
- the performance of the fund's portfolio of investments, and
- the fund's fees and expenses.