By: Dr K. C. Gupta

What is your fund’s yield? That simple question doesn’t have a simple answer. To protect the investors, there are regulations about how funds report yields. But those regulations don’t apply to websites that report fund performance data, so that creates a lot of confusion.

Current or distribution yield is annualized from distributions for the past month or quarter. It’s relevant if you hold a fund or are considering buying it. Special distributions may or may not be included.

Trailing 12-month yield (TTM) is based on past 12 months of distributions. It’s relevant if you have already held the fund for 1 year or longer. If interest rates are changing, the TTM yield isn’t very useful when considering new fund purchases.

Yield-to-maturity (YTM) of an individual bond takes into account the coupon rate, par value (or, maturity value), current price & credit rating. Bond YTM is also its total-return
(TR) if held to maturity. If the current interest rate is below/above the coupon rate, then
the bond sells at premium/discount from par to provide an acceptable YTM. At a high enough current price, a bond may have negative yield (as for several European & Japanese sovereign bonds during the ZIRP). Bond may have early “call” provisions by the issuers & then yield-to-call (YTC) or yield-to-worst (YTW) may be used.

For bond portfolios, the notion of YTM becomes tricky due to assumptions that have to be made. The simplest way for portfolio YTM is to just calculate the weighted-average of the individual bond YTMs, but that is problematic. In order to provide consistency, the SEC has prescribed a special but complex calculation based on the YTM of component bonds to calculate the 30-day SEC yield (Form N-1A).

For the 30-day SEC Yield (1988- ) of bond funds, the individual bond YTMs are
calculated, the daily interest accrual amounts are imputed for 30-day month (360-day year), these amounts are added up for 30-days, the expenses & fees are deducted, & monthly yield is calculated based on the maximum fund price on the 30th day. This monthly yield is compounded for 6 months & then doubled for 12 months (similar to Treasury bond interest calculations).

The starting 30-day SEC yield of a bond fund is its prospective TR under some
assumptions. But fund portfolios change & most holdings are not held to maturity, & interest rates may change too, so the SEC yield provides just a snapshot at the time of calculation.

For the stock portion of the fund, the imputed daily dividends are calculated regardless of the dividend payment frequency. For all-stock funds, the SEC yield should be close to distribution yield, & if not, suspect special handling of distribution components (dividends, short-term CGs, estimated ROCs in forms 19a, options premiums).

The 7-day SEC yield is used for money-market funds. Some firms also report the higher compounded 7-day SEC yield.

Most bond mutual funds accrue dividends daily & pay them monthly (from accrual accounts) & their NAVs aren’t affected on the ex-dividend dates. Most stock & hybrid funds flow the dividends through their NAVs & those are reduced by the distribution amounts on the ex-dividend dates. The ETFs use the latter flow-through-NAV method.

Some bond funds use premium bonds to boost the current income at the expense of NAVs. On the other hand, some TR oriented bond funds may use discounted bonds for eventual capital gains. The weighted-average price for the bond portfolio above/below par indicates if the bonds are predominantly premium/discount bonds.

The SEC is silent on how to handle TIPS (01/1997- ) inflation-adjustments. Most TIPS funds just exclude them & report only the 30-day SEC real yield. But some TIPS funds add the current CPI-based inflation-adjustments (annualized) to boost reported yields.

Unlike individual TIPS, the TIPS funds are required to distribute inflation-adjustments (whether earned or not) annually by the yearend.

Yield is only one component of the Total Return (TR) of a fund (see Total Return, 4/18/25). For bond funds, important for TR are (i) yields, (ii) reinvestments & (iii) capital gains/losses. For stock or hybrid funds,
%TR = %Dividend_yield + %Earnings_growth + %Change_in_P/E .

Some investors put higher emphasis on income than earnings growth or capital gains – but you cannot have it all. With income in their hands, fund holders may spend, reinvest, or invest in something else. If money is needed for current spending, a higher personal value may be attributed to the current income.

For more information, see https://ybbpersonalfinance.proboards.com/