# Meaning of Yield, Formula, and How to Calculate it

Knowing the Definition of Yield, Formula, and How to Calculate It – In a business there are various terms used to name the business activity such as this time it is a term about yield or profit sharing from an investor after investing in a long term.

In an investment, understanding the terms of yield is quite important so that Reader friends who want to start investing know about how the investment works, its benefits, and the correct calculation method. Because it will affect the profit that Reader friends will get in an investment.

Yield (English), or yield, is the benefit of investment instruments given to investors during a certain period of time. Income can include income and profit from price increases. The result is usually expressed as a percentage (%).

In mutual funds, performance is shown by the change in net asset value (NAV) of mutual funds. A positive return indicates that the net worth of the investment fund has increased compared to the net worth at the time of purchase. However, a negative return indicates a decrease in net worth.

For that, all Reader friends, especially those who want to start investing in stocks, need to find out what important elements are needed to invest successfully. Well, in this discussion we have also summarized the terms of yield, the formula, and the correct way to calculate it.

Further, we will present the discussion below!

## Definition of Shares

Before understanding how the yield system works in a stock fund for the benefit of investors, it is good that we also understand the meaning of the stock itself fundamentally. For that let’s take a look at the meaning of shares below!

Shares are proof of ownership of the company’s value. The word stock itself is taken from the Arabic language. In fiqh literature, shares are taken from the term musahamah which comes from the word sahm (Arabic: سهم‎), the plural form of ashum or suhmah which means part, share of ownership.. The more shares you have, the greater the power you have in the company. By issuing shares, it is possible for companies that need long-term financing to “sell” their business property – shares (equity effect) – for money, which, in addition to issuing bonds, is the main means of obtaining business capital. Shares are sold through the primary or secondary market. Stocks are one of the most popular financial market instruments. Issuance of shares is one of the company’s choices in deciding on company financing.

Shares can be interpreted as proof of capital participation of a person or party (business entity) in a company or limited company. With the participation of this capital, the political party has a claim on the company’s income, a claim on the company’s property and the right to participate in the general meeting (GMS).

## Definition of Yield

The yield is the profit that can be obtained from the investment made during a certain period of time and following a certain process. Another name for yield is yield or return.

Return, or often return, is the profit obtained from an investment during a certain period of time or after a certain process. Revenue and return are terms that usually refer to nominal income. However, return is profit, usually expressed as In essence, return is a term that refers to the return on investment – ​​nominally. Meanwhile, yield is a term that refers to profit in the form of a percentage.

Yield is a term often used to refer to the profit obtained from investing in stocks. More specifically, return is a measure of profit or profit that investors receive from investing in a product over a certain period of time. Generally, returns are calculated per year, although some also calculate monthly returns. In addition, the yield is usually also reflected from the historical price increase of the stock. Thus, yield can be your consideration when deciding to buy an investment asset, one of which is shares. Then how to calculate income? As previously explained, the rate of return is the percentage obtained by dividing the income received by the invested capital. So the formula to calculate the return is simple: Return = Return/Capital Value x 100 percent For example, if you invest with equity instruments, the return you get can consist of two things. The first comes from rising stock prices and the second from dividend-paying issuers or companies whose shares you own.

What is meant and how to calculate it: If the income you receive from an increase in share prices, for example from Rp 1000 to Rp 1200 per share. In addition, dividends, for example, 20 pieces per share received in one year. The revenue or income received consists of the increase in the share price and dividends received divided by the share capital value at the time the shares were first purchased. As an example of the calculation in the picture above: Return = (Rp 200 Rp 20)/Rp 1000 = 0.22 Or if you use a percentage, you get a return of 22 percent.

## Types of Returns

Although higher yields indicate lower risk and higher returns, it is important to know the various indicators that cause investment results to fluctuate. The higher the yield, the greater the possibility of a falling market effect, where the market value will also fall. If the yield is too high, it could mean that your stock price is going down or that the company is paying a large dividend. There are different types of returns that you need to know about. You can consider these different types of returns before making an investment decision.

• ### Current Yield

Current yield is a type of yield for bond instruments. The current yield is the ratio of the coupon rate to the spot price of the loan.

• ### The payoff of maturity

Yield to maturity is the result of bond investment at maturity. It can be said that the yield to maturity is the initial value of the investment that is fully returned to the investor. The calculation formula is to equate the current bond price with the total yield in the future.

• ### Yield Dividend yield

Dividend yield is a percentage of the value of the dividend or dividends distributed and the share price per share. This distribution value can change from time to time. The dividend yield calculation is obtained by dividing the dividend by the current price of the stock.

• ### Call Returns

This definition of return is useful as a return denominator due to the transfer of company shares to all owners. This usually happens in a limited company, which can be called.

In other words, the company can buy back the shares it needs from investors. You simply use the following formula to calculate this type of return.

Yield t= [profit + (latest bond value – bond value at purchase) / tenor until stock calling] / [(bond value at purchase + bond value at latest) / 2] x 100%

• ### Worst yield

If this yield is the type of yield applied is used to return to the investor. This usually happens because investors call back before expiration.

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## The relationship between risk and return

From the explanation of the definition of yield that has been explained above, it can be known that yield is usually closely related to investment risk. Risk is an important part of the return paid on an investment.

In general, the relationship between risk and investment return is such that the greater the potential risk of an investment, the greater the potential return of the investment. For example, stocks tend to carry higher risk than bonds, so stocks have a relatively higher return potential than bonds.

## Return on Investment

The return on invested capital can vary depending on the type of investment instrument you choose. In the following, we will explain the types of returns owned by various types of investment instruments.

• ### Obligation proceeds

Bond yield is the expected yield from an interest-bearing investment over a specified period of time. Bond yield is usually expressed as a percentage or interest.

• ### Return Investment fund income

Unlike obligations, the return of investment funds is the return that is returned to investors in the form of interest and dividends produced by investment funds. Mutual fund performance is usually expressed as a percentage based on total earnings per share divided by the net worth of the shares.

Investment fund managers can use different methods to calculate returns to investors. Therefore, every prospective investor should consult the prospectus to see where the figures come from.

The higher the performance of the mutual fund, the more attractive the mutual fund is in the eyes of investors. This is because the higher the yield of mutual funds, the higher the yield. On the other hand, investors should also anticipate the risks that may occur, because the higher the mutual fund yield, the more risky the type of mutual fund.

## How to Calculate Yield

The calculation of yield can vary depending on the purpose and type. In short, the calculation will depend on the respective investment instrument. Below is a general way to calculate yield.

Yield = profit / principal x 100%

For example, you buy a share at a price of Rp.900 per share, then sell it in the next few years at a price of Rp.1,000 per share. This means you earn a nominal profit of Rp.100.

In addition, on the investment you get a dividend at a price of IDR 10 for each share. Well, how does the calculation work? This is the answer to the yield example.

Yield = (Rp100 + Rp10)/Rp900 x 100% = 12.2%

It should be noted that the discussion of yield calculation method above is general for stock instruments. If you want to be more specific then, find out the formulas based on their own types.

## Average Return on Investment

The yield value of each investment instrument can be said to be quite variable and depends on the trading market conditions of the relevant asset. For this reason, it is quite difficult to state the average value of bond, mutual fund and crypto investment returns.

However, when for the estimate. Bond investment yield can vary based on the indicator rate. The following is the highest average Indonesian bond yield 2022 (as of April 28, 2022):

• Yield on National Bonds, the highest average of 7.87%;
• Bond yields with AAA indicators have the highest average of 12%;
• Bond yields with the AA indicator have the highest average of 11.5%;
• Bond yield with indicator A has the highest average of 12.25%; as well as
• Finally, the bond yield with the BBB indicator has the highest average value of 13.13%
• Meanwhile, mutual fund investment returns also vary depending on the type. The following is the highest average mutual fund yield as of April 4, 2022.
•
• Mutual fund yield of 17.91%;
• Mixed mutual fund yield of 10.89%;
• The yield of money market mutual funds worth 1.3%; and
• Lastly, the yield of fixed income mutual funds is 3.48%.

That’s a complete explanation of what investment yield is, how to calculate the average yield from each investment instrument. Hope the information is useful for you, yes!

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## Make the right strategy for high returns

Every mutual fund investor wants to get a higher yield. For that, make sure you make the right mutual fund investment strategy. For example, buying and selling at the right time. For example, buy when the price is low and sell when the price is high. So, don’t withdraw money immediately after the investment yield drops.

Improve your investment skills by learning to invest online or by attending investment training, which is often held by financial media or famous investors. This is how you become a trusted investor.

## Conclusion

So much for a short discussion about the definition of Income, Formula and How to Calculate it. Not just the definition, but also discussing the role of function in stock investment, how to calculate etc. Understanding the definition of yield makes us as members of the public be more careful when entering the world of stocks so as not to invest randomly and be able to understand the world of stocks better to avoid false investments.