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The total return index is a type of equity index that tracks both the capital gains of a group of stocks over time, and assumes that any cash distributions, such as dividends, are reinvested back into the index. Looking at an index's total return displays a more accurate representation of the index's performance. By assuming dividends are reinvested, you effectively account for stocks in an index that do not issue dividends and instead, reinvest their earnings within the underlying company.
BREAKING DOWN 'Total Return Index'
A total return index may be deemed more accurate than other methods that do not account for the activity associated with dividends or distributions, such as those that focus purely on the annual yield. For example, an investment may show an annual yield of 4% along with an increase in share price of 6%. While the yield is only a partial reflection of the growth experienced, the total return includes both yields and the increased value of the shares to show a growth of 10%. If the same index experienced a 4% loss instead of a 6% gain in share price, the total return would show as 0%.
Read more: Total Return Index Definition | Investopedia http://www.investopedia.com/terms/t/total_return_index.asp#ixzz4RbrZsL6O
BREAKING DOWN 'Total Return Index'
A total return index may be deemed more accurate than other methods that do not account for the activity associated with dividends or distributions, such as those that focus purely on the annual yield. For example, an investment may show an annual yield of 4% along with an increase in share price of 6%. While the yield is only a partial reflection of the growth experienced, the total return includes both yields and the increased value of the shares to show a growth of 10%. If the same index experienced a 4% loss instead of a 6% gain in share price, the total return would show as 0%.
Read more: Total Return Index Definition | Investopedia http://www.investopedia.com/terms/t/total_return_index.asp#ixzz4RbrZsL6O
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