When it comes to questions about open-end mutual funds, I seem to be h...

Yield represents the income an investor receives as a percentage of either market value or of the purchase price of the investor’s shares. For example, if an investor buys $10,000 worth of the ABC equity income fund and receives dividend distributions of $500, that investor’s yield is 5%.

Whereas yield is always a positive number, total return can be positive or negative. Total return includes both the income received by the investor and the increase or decrease in market value the investment experiences. For example, if the investor in the ABC equity income fund also receives a capital gains distribution of $200, that is factored into the total return, as is the increase or decrease in market value of the investor’s investment. If the investment has dropped to $9,200, the total return is negative. We add $500 to $200 but subtract $800 for the market decline. The investor is down $100 on a $10,000 investment, resulting in a total return of -1%.

Securities regulators insist that agents do not try to conceal a fund’s negative total performance by quoting only its yield. Yield is always a positive number, as some amount of money is received by investors, which is then divided by the NAV. Total return, on the other hand, can be positive or negative. Therefore, securities agents must not quote yield without also quoting total return to an investor and clearly explaining the difference.