What Is the Gross Rate of Return?

The gross rate of return is the total rate of return on an investment before the deduction of any fees, commissions, or expenses. The gross rate of return is quoted over a specific ꦿperiod of time, such as a month, quarter, or year. This ༺can be contrasted with the net rate of return, which deducts fees and costs to provide a more realistic measurement of return.

Understanding Gross Rate of Return

The gross rate of return on an investment is one measure of a project or investment's 澳洲幸运5开奖号码历史查询:gross profit. It typically includes 澳洲幸运5开奖号码历史查询:capital gains and any income received from th💞e investment. By comparison, the net rate of return deducts fees and expenses from the investment’s final value. The formula for gross rate of return is: 

 $\text{Gross rate of return} = \frac{(\text{Final value} - \text{initial value})}{\text{Initial value}}$Gross rate of return=Initial value(Final value−initial value)​

Special Considerations 

Details on how an investment company calculates returns are often included in the fund’s prospectus. The gross rate of return is often quoted as the rate of return on an investment in fund marketing materials. Returns for more than a year are often annualized, which provides the geometr♏ic average return of an investment for each year over a given time period.

In investment management, the CFA Institute's Global Investment Performance Standards (GIPS) govern the calculation and reporting of returns. Investors can rely on the GIPS return standards for comparing investment-return characteristics across the industry.

Types of Gross Return 

Investors often use return calculations when considering a new ꧃investment or assessing the performance of an investment. Net return is typically not as easily identified as a gross return. For this reason, investors often turn to the expense ratio in order to determine how the expenses affect the return of the fund. 

The 澳洲幸运5开奖号码历史查询:expense ratio is a mutual fund characteristic that represents the percentage of fund assets p꧟aid for expenses. It is often used in conjunction with a fund’s total return and benchmark return to provide a comparison of the fund’s performance.

ꦆAs an example, a fact sheet provided by one of the market’s top large-cap funds, the Quanti­fied STF Fund (MUTF: QSTFX), provides an example of how returns and expenses are expressed. The reports a gross rate of return. It a𒆙lso provides a breakdown of the fund’s expenses and has an expense ratio of 1.71%.

Gross Rate of Return vs. Net Return 

For net return, fees and commissions are deducted, as well as the effects of taxes and 澳洲幸运5开奖号码历史查询:inflation. A currency loses 澳洲幸运5开奖号码历史查询:purchasing power due to inflation, which also affects the return on an investment. Therefore, inflation should be inc🌠luded in💖 the calculation of real return. If, for example, annual inflation is 2% and the nominal return on an investment is 1%, the investor will have made a negative real return in the course of one year.

Thus, the gross rate of return can be substantially different than the net rate of return, which deducts fees and expenses. For example, the gross return realized on a mutual fund that charges a 5.75% 澳洲幸运5开奖号码历史查询:sales charge will be very different than the net return, which will be realized after the charge has been d𒅌educted.