Economics Mutual Funds Questions Medium
The difference between a growth rate and a dividend yield in mutual funds lies in the way they generate returns for investors.
Growth rate refers to the increase in the value of an investment over a specific period of time. In the context of mutual funds, growth rate typically refers to the capital appreciation of the fund's underlying assets. This means that the value of the mutual fund's investments is expected to increase over time, resulting in a higher net asset value (NAV) per share. Investors who are focused on long-term capital appreciation may prefer mutual funds with a higher growth rate.
On the other hand, dividend yield represents the income generated by a mutual fund's investments in the form of dividends. Dividends are typically paid out by companies in which the mutual fund has invested, and they are a portion of the company's profits distributed to shareholders. Dividend yield is calculated by dividing the annual dividend per share by the current NAV per share of the mutual fund. Investors who are seeking regular income from their investments may prefer mutual funds with a higher dividend yield.
In summary, growth rate focuses on the potential for capital appreciation and increasing the value of the investment, while dividend yield focuses on the income generated by the mutual fund's investments through dividends. Both factors play a role in determining the overall return and suitability of a mutual fund for an investor's specific financial goals and preferences.