What is the 'SEC Yield'
The SEC yield is a standard yield calculation developed by the U.S. Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds. It is based on the most recent 30day period covered by the fund's filings with the SEC. The yield figure reflects the dividends and interest earned during the period after the deduction of the fund's expenses. It is also referred to as the "standardized yield."
BREAKING DOWN 'SEC Yield'
The SEC yield is used to compare bond funds because it captures the effective rate of interest an investor may receive in the future. It is widely considered a good way to compare mutual funds or exchangetraded funds (ETFs) because this yield measure is generally very consistent from month to month. The resulting yield calculation shows investors what they would earn in yield over the course of a 12month period if the fund continued earning the same rate for the rest of the year. It is mandatory for funds to calculate this yield.
Calculation of the SEC Yield
Most funds calculate a 30day SEC yield on the last day of each month, though U.S. money market funds calculate and report a sevenday SEC yield. The standardized formula for the 30day SEC yield consists of four variables:
a = interest and dividends received over the last 30day period
b = accrued expenses over the last 30day period, excluding reimbursements
c = the average number of shares outstanding, on a daily basis, which were entitled to receive distributions
d = the maximum price per share on the day of the calculation, the last day of the period
The formula of the annualized 30day SEC yield is:
2 x (((a  b) / (c x d) + 1) ^ 6  1)
As an example, assume Investment Fund X earned $12,500 in dividends and $3,000 in interest. The fund also recorded $6,000 worth of expense, of which $2,000 was reimbursed. The fund has 150,000 shares entitled to receive distributions, and on the last day of the period, the day the yield is being calculated, the highest price the shares reached was $75. In this scenario, the variables equal:
a = $12,500 + $,3000 = $15,500
b = $6,000  $2,000 = $4,000
c = 150,000
d = $75
Once these numbers are plugged into the formula, it looks like this:
30day yield = 2 x ((($15,500  $4,000) / (150,000 x $75) + 1) ^ 6  1), or 2 x (0.00615) = 1.23%

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