A unit trust fund's performance can be measured by its total return. A fund's total return is the change in the value of an investment in the fund, taking into account any change in the fund's unit price during the period and assuming the reinvestment of income and capital gains distributions.
Total return is commonly presented in two ways. One is called the fund's cumulative total return, or total rise in the value of a fund's investments over time, assuming that income and capital gains distributions were reinvested.
The other is called average total return, which is the compounded total return, it would take each year to produce the fund's cumulative total return. Seemingly modest annual returns can be converted, through the power of compounding, into impressive cumulative returns. For example, an average annual total return of 7% would, after ten years, amount to a cumulative total return of 97%.
When evaluating fund performance, a good approach is to compare its total return with the returns of similar funds or with the return of an appropriate market index or benchmark over the same time period.
A stock fund should be compared with other similar stock funds - ones that invest in the same type of companies. A bond fund should be compared with bond funds that invest in bonds of similar maturities and credit quality (rating). You can usually find the name of the appropriate market index or benchmark on a fund's prospectus or manager's (annual and semi-annual) report.