An annual return is simply the annual rate of return of an investment. This annual rate of return is measured as a percentage. Generally the annual return takes into consideration whether or not the mutual fund is expressed as APY (Annual Percentage Yield) or (APR) Annual Percentage Return. If it expressed as an APY, then generally the annual return is going to take into consideration compounding interest when formulating the percentage. However, if it is expressed as APR, there will be no inclusion for this compounded interest.
Keep in mind that there are two types of annual return. One type of annual return is for the single year, however, the average annual return is for multiple years. Generally, the average annual return is the average return taken over the lifetime of the mutual fund. But you can also do the average annual return based over the last 5, 10, 20, or however many years you wish to base this number. This allows investors to compare one fund from another to determine which fund has the best realistic return. Obviously if this fund has a negative return, then the fund is under performing. if this fund has a positive return, this fund is simply performing.
When investing in a mutual fund it is important that you look at both of these factors, the average annual return and the annual return. This is a great indicator of the past success of the mutual fund and the current success. If this fund doesn’t compare to other funds, then it would be wise to choose a different fund. This is the best means of comparing similar fund styled funds as apples to apples.