When you step into fund investment field, you need to have a at least a little knowledge about the Dividend Index so as to benefit more. Smart Beta is also being highlighted these days and people who have a thorough knowledge about the same are always at an edge. Here, however, we will give you a brief know how about the Total Return Indices.
What is Total Return Indices?
The total return index is basically a type of an equity index that has a track of both, the capital gains of a group of the stocks over a period of time, as well as the assumption that any of the cash distributions, including the dividends, are reinvested in the index. Index's total return is a better representation of the accurate performance of the index. By making an assumption that the dividends are reinvested, you can effectively account for the stocks in the index that is no issuing the dividends and as an alternative reinvest your earnings within the same company.
Insight into total return index
A total return index can be taken to be the more accurate method in comparison to the others that does not account for those activities that are associated with the dividends or else the distributions. One of the popular examples of the total return index is the Standard & Poor's 500 Index (S&P 500). The total return index is known to follow almost the same pattern as the one on which many of the mutual funds operate. Additionally most of the total return indexes are a reference to the equity-based indexes. Other prominent examples of the total return indexes are the very popular Dow Jones Industrials Total Return Index (DJITR) as well as the Russell 2000 Index.
All in all, this is the brief know how about the Total Return Indices. Index funds are actually a reflection of the index on which they are actually based. The sole purpose of the index fund is to demonstrate the activity, as well as the growth, of the index that actually functions as its benchmark.
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