Total Return Index

What is the 'Total Return Index'

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 have accounted for stocks in an index that do not issue dividends and instead, reinvest their earnings within the underlying company.

BREAKING DOWN 'Total Return Index'

The Standard & Poor's 500 Index (S&P 500) is one example of a total return index. The total return indexes follow a similar pattern in which many mutual funds operate, where all resulting cash payouts are automatically reinvested back into the fund itself.

While most total return indexes refer to equity based indexes, there are total return index that for bonds, which assumes that all coupon payments and redemptions are reinvested by buying more bonds in the index.

RELATED TERMS
  1. Performance-Based Index

    A stock index that includes all dividends and other cash events ...
  2. Enhanced Index Fund - EIF

    A mutual fund that tracks a stock market index, but with certain ...
  3. Reinvestment

    Using dividends, interest and capital gains earned in an investment ...
  4. Index

    A statistical measure of change in an economy or a securities ...
  5. S&P MidCap 400 Index

    This Standard & Poor's index serves as a barometer for the ...
  6. Price-Weighted Index

    A stock index in which each stock influences the index in proportion ...
Related Articles
  1. Investing Basics

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  2. Mutual Funds & ETFs

    ETF Tracking Errors: Protect Your Returns

    Tracking errors tend to be small, but they can still adversely affect your returns. Learn how to protect against them.
  3. Investing Basics

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is almost always a good idea if you intend to hold your shares for the long term, and there are several ways to do it.
  4. Retirement

    Should Retirees Reinvest Their Dividends?

    Find out why dividend reinvestment may or may not be the right choice for retirees, depending on their financial needs and investment goals.
  5. Options & Futures

    Using Index Futures To Predict The Future

    Want to know whether the stock market will open up or down? Check out the index futures.
  6. Mutual Funds & ETFs

    3 Best Global Equity Index Mutual Funds

    Discover three no-load and low-fee global equity index mutual funds that can add worldwide diversification and steady returns to a portfolio.
  7. Mutual Funds & ETFs

    The 4 Best Indexes for Dividends

    Learn about some of the biggest dividend indexes in the marketplace and which niche of the dividend universe each of these indexes targets.
  8. Mutual Funds & ETFs

    Vanguard Total Stock Index Vs. Vanguard 500 Index Fund

    Explore detailed analyses of the Vanguard Total Stock Market and Vanguard 500 Index funds, and learn about their characteristics and suitability.
  9. Mutual Funds & ETFs

    ETF Options Vs Index Options

    Investors have much to consider when they’re deciding between ETF and index options. Here's help in making the decision.
  10. Mutual Funds & ETFs

    3 Types Of Indexing For ETF Success

    ETF success relies on the index with which it's paired. Discover three index genres for tracking average market performance.
RELATED FAQS
  1. What are the dividend reinvestment options for a mutual fund?

    Learn about the options that shareholders have for dividend distributions made by mutual funds and why a shareholder may ... Read Answer >>
  2. Should mutual fund dividends be reinvested?

    Learn the advantages and disadvantages, as well as the tax impact, of having your mutual fund dividends automatically reinvested ... Read Answer >>
  3. How does a point change in a major index effect its equivalent exchange-traded fund?

    The S&P 500 and Dow Jones Industrial Index (DJIA) are two of the most well-known indexes tracking the movement of the ... Read Answer >>
  4. Do cash dividends that are no longer being reinvested affect the cost basis of my ...

  5. How do indexes determine which stocks are removed or added to them?

    Stock indexes are formed based on the kinds of stocks or financial securities they want to track. For example, the Standard ... Read Answer >>
  6. What are the pros and cons of using the S&P 500 as a benchmark?

    Learn about the advantages and disadvantages of using the S&P 500 as a benchmark for portfolio performance, and understand ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center