30-day yield
From Wikipedia, the free encyclopedia
In the United States, Bond mutual funds state their yields using a formula specified by the U.S. Securities and Exchange Commission (SEC). This formula translates the fund's current portfolio income into the standardized 30-day yield for reporting and comparison purposes. The formula usually appears in the fund's "Statement of Additional Information (SAI)", a treasury of arcana too dense to be included in the fund's prospectus.
Because the 30-day yield is a standardized mandatory calculation for all bond funds, it serves as a common ground comparison of yield performance. Its weakness lies in the fact that funds tend to trade actively and do not hold bonds until maturity. In addition, funds do not mature. For this reason, analysts often consider a distribution yield be a better measure of a fund's income-generating potential.
Money market funds generally report a 7-day SEC yield. The rate expresses how much the fund would yield if it paid income at the same level as it did in the prior month for a whole year. It is calculated by taking the sum of the income paid out over the period divided by 7, and multiplying that quantity by 36500 (365 days x 100).
[edit] Bond fund yield calculation
The SEC yield calculation for a bond fund is quite a bit more complicated. The rate is essentially a "yield to maturity" for the entire portfolio. Because bond funds trade actively and prices fluctuate, the rate may not be a good indicator of future results. However, because the calculation is standardized, it provides a good comparison measure for funds.
The formula for SEC 30-day yield is as follows:
Yield = 2[{(a-b/cd)+1}^6-1]
Where:
- a = dividends and interest
- b = accrued expenses
- c = average daily number of outstanding shares that were entitled to distributions
- d = the maximum public offering price per share on the last day of the period
