A payment can outweigh a price fall—or fail to
Renting out a camera leaves you with its current value and the payments received. Both matter, alongside costs. An investment’s total return likewise combines its change in value with income and other distributions.
A fund pools investments. A unit is an interest in that fund under its terms. Its net asset value per unit (NAV) is assets minus liabilities, divided by the number of units. It is a value measure; the price available on an exchange can differ.
Invented one-year investment of €100. No further purchases or withdrawals; cash earns no interest. Costs and taxes excluded.
↓ One year: value changes and cash is paid out
The €4 payment covers the €2 fall, leaving a €2 gain: 2% of the initial €100. Boxes show location, not scale.
Calculate two outcomes from the same payment
If the fund ends at €90 under the same conditions, the €4 payment leaves €94: a 6% loss. Receiving cash alone does not establish a profit.
Shares can pay dividends, bonds interest or coupons, and funds distributions of income or gains. Repayment of €1,000 bond principal is not €1,000 profit: price paid, interest, costs and repayment losses all matter.
Cash paid out leaves the fund
One unit, valued at NAV. Nothing else changes; costs and taxes excluded. Reinvestment assumes fractional units at the unchanged €97 NAV.
↓ €3 leaves the fund and becomes your cash
↓ Reinvest the €3 cash: buy additional units
The €3 is now inside the units' value. Adding it again would count the same money twice. Boxes show location, not scale.
A cash distribution reduces fund assets; the diagram follows the value into cash and back into units. This reconciles value received and value remaining. The next chapter examines the businesses and borrowers that can produce that value.
The exchange price can also respond to trading and news, so its observed change need not match the payment exactly. Entitlement and receipt dates can differ. Some distributions return investors’ capital; a high payment rate can coexist with a poor total return.
Count reinvested income once
The additional units in the diagram now participate in future gains and losses. Spending the cash instead removes it from future investment returns.
A share class is a variant of participation in a fund with specified terms. An accumulating class retains and reinvests income inside the fund; a distributing class pays it out. An unadjusted price chart can favour accumulation merely because the other class has paid cash. Check reinvestment assumptions and applicable tax: reinvestment can still create a tax obligation.
Check what the reported percentage includes
Match price or total return, dates, currency and reinvestment. A gain over three years differs from the same percentage per year. A statement’s gain/loss column may exclude distributions, realised gains or separate charges.
Operating expenses already reduce fund assets. Deducting them again from an expense-inclusive return understates the result; account, advice, transaction and outside tax charges may still require adjustment.