Holding Period Return

Holding Period Return (HPR) is the total return on an investment or asset portfolio over a period of time. It's usually expressed as a percentage and can be realized or expected.
EXPLORE FUNDS
Holding Period Return
EXPLORE FUNDS
3 min
28-August-2024
The holding period return (HPR) comprises the total return on an investment or an asset over the duration for which the investment or asset has been in force. The return generated from a holding period can be realised if the investment or asset is held for a period. If you are an investor, then learning about the return from a holding period of an investment or asset becomes imperative for you to make the most of your returns. Let us delve into the subject further.

What is the holding period return?

For investors, the holding period return is crucial to their investment journey. Being an investor, you should know about this aspect of investment. Essentially, the holding period return reflects the total return that is earned on an asset or an investment in the period that the investor holds the asset or the investment. Assets and investments could be any of many types, such as one asset or a whole asset portfolio. Say, if you invest in mutual funds on the Bajaj Finserv Mutual Fund Platform, and hold the mutual fund for a duration, that will be your holding period for that particular investment.

The holding period return (HPR) is sometimes referred to as the Holding Period Yield (HPY). As an investor, the holding period return holds importance for you as it permits you to evaluate the performance of your investments during a period.

Understanding holding period return with an example

Holding period return meaning can be best understood with the help of the example below:

Let us say that a person invested Rs. 10,000 in the shares of Company X three years ago. Each year, the company has managed to distribute dividends to its investors (its shareholders). Each year, the investor receives Rs. 100 as the dividend amount. So far, the investor (in 3 years) has earned Rs. 300 as their total income from dividends. Today, the investor sold their company shares for Rs. 12,000. Now, the investor wishes to know the holding period return of their investment. If you use the following formula, you know the holding period return in terms of a percentage:

Holding Period Return = (Income + End of Period Value of Investment - Initial Value of Investment) / Initial Value of Investment

Therefore, with the amounts in the example, Holding Period Return = (Rs. 300 + Rs. 12,000 - Rs. 10,000) / Rs. 10,000 = 0.23 or 23%

Therefore, the investor’s investment in Company X shares earned 23% for the whole period of the investor’s holding of the investment.

Key Takeaways

  • Holding period return, or holding period yield is the total amount of return that an investment earns in the duration that it has been held by the investor.
  • The period that an investor holds an investment is known as the holding period. In terms of a security, the holding period is the duration between the buying and selling of a security. Related to mutual fund schemes, the holding period may be considered the time from which you buy mutual fund units to the time you exit the fund.
  • Holding period return is a useful tool to make similar comparisons between investment returns bought at different times.

Formula for holding period return

When you ask the question, “What is holding period return?”, you may be able to get a response if you know the formula to obtain the holding period return on an investment. Of course, there are many calculators available online to calculate your returns on any investment you make, including investment in mutual funds. By using a mutual fund calculator, you can easily estimate your returns from a mutual fund investment. Nonetheless, it is important to know the formula for calculating the holding period return as this helps you to apply it to different investments, including mutual funds. The formula is mentioned below:

Holding Period Return = (Income + End of Period Value of Investment - Initial Value of Investment) / Initial Value of Investment

How to calculate the holding period return?

The holding period return meaning becomes clear to understand if you know how to calculate the holding period return. Nowadays, you get a plethora of online calculators that aid you in estimating your returns from any investment, be it in stocks or mutual fund units. In case you wish to calculate the holding period return on an online calculator, all you need to do is to enter some values like the initial value of your investment, and the final value (this may be an estimation), the date of buying the investment and the date of selling the investment. After this, you can click on the “Calculate” button and get your estimated response.

The holding period return can also be calculated by using a mathematical formula, and this has been highlighted in previous sections.

Example of Holding Period Return Calculation

An example of holding period return that helps you to compare two mutual funds may be useful in grasping the concept of holding period return:

Let us say that you have invested in two different mutual fund schemes. Now you want to find out which investment performed better, Mutual Fund ABC in force for 3 years and going from Rs. 1000 to Rs. 1500, providing Rs. 100 in distributions, or Mutual Fund XYZ, starting at Rs. 2000 and appreciating to Rs. 2300, generating Rs. 150 in distributions during a 3-year period?

Fund ABC = (100 + 1500 – 1000) / 1000 = 60%

Holding Period Return = 60%

Fund XYZ = (150 + 2300 – 2000) / 2000 = 22.5%

Holding Period Return = 22.5%

Clearly, Fund ABC has performed better than Fund XYZ. Considering that these funds were held for the same periods, although the invested sum is more in Fund XYZ, the holding period return is less than that of Fund ABC.

Importance of holding period return for investors

Learning about the holding period return meaning is the key for investors to make informed investment decisions. The holding period return gives you a potentially prospective idea about two different investment instruments, aiding you to make educated comparisons aligned with your financial preferences and goals.

A fundamental tool in investment management, the holding period return is a metric that gives you a comprehensive perspective about investments and assets as it considers the capital appreciation of the investment or asset and the distributions of income associated with the asset or investment (such as dividends or bonus payments). Furthermore, the holding period return metric is employed to identify the tax rate that is applicable to any asset or investment that yields returns.

Conclusion

There are several metrics in the investment ecosystem that help you to select investment instruments according to your unique requirements and financial goals. The holding period return amounts to the total return that you receive from the holding of an investment or an asset. Usually expressed as a percentage, the holding period return gives you a clue about returns you may expect from one or more investments, taking the holding period into consideration.

Investing is not a complicated process and if you start early, there are potentially lucrative opportunities for you to invest and earn potentially prospective returns. With myriad options in terms of investment channels and instruments on offer, mutual fund schemes are a popular choice among investors today as they can be tailored to investors’ specific needs. If you wish to explore the world of mutual funds, and know about the different types available, you can visit the engaging Bajaj Finserv Mutual Fund Platform. Make your way through easy mutual fund investment as you compare more than 1000 mutual fund schemes with convenient online calculators to help you make smart decisions.

Essential tools for all mutual fund investors

Kotak Bank SIP CalculatorLumpsum CalculatorSystematic Investment Plan Calculator Step Up SIP Calculator
SBI SIP CalculatorHDFC SIP CalculatorNippon India SIP CalculatorABSL SIP Calculator




Frequently asked questions

What is meant by a holding period return?
Holding period return or holding period yield is the total return which is earned on an asset or an investment in the period that it is held. A holding period is the duration that the investment or asset is held by an investor, or the duration between the buying and the selling of assets, investments, or securities.

How is Holding Period Return calculated?
The holding period return is calculated by subtracting the initial value of the investment from the sum of the income earned from the investment and the end of period value of the investment, and this is divided by the initial value of the investment.

What is the significance of the holding period in HPR?
The period that an asset or an investment is held by you is referred to as the holding period. Importantly, it is the duration between the time you acquire an asset or an investment and the sale or the appreciation of that asset or investment. The holding period has significance while calculating the holding period return which is effective in comparing investment returns for assets or investments acquired at different times.

Can Holding Period Return be negative?
The holding period return is expressed as a percentage. This can be negative as investments or assets do not always appreciate in value.

How does Holding Period Return differ from Annualised return?
Holding Period Return (HPR) measures total return over a holding period, while Annualised Return converts HPR into an average annual return that accounts for compounding effects, allowing comparison of performance across investments held for different durations

What factors can affect Holding Period Return?
Certain factors can affect the holding period return of specific investments. For instance, changes in rates of interest may affect bond yields and other investments sensitive to interest rate fluctuations. In another example, socks may not generate returns if they depreciate in value over time.

Why is Holding Period Return important for investors?
The holding period return is significant for many reasons. Not only does it take capital appreciation and income payments into account, but it is an effective method to compare the performance of assets or investments which are held over varying time horizons.

Can Holding Period Return be used for any type of investment?
Yes, the holding period return metric can be used for any type of investment or asset if it is held over a period. The aim of the metric is to compare different investments and assets based on their performance in a duration of time.

How does reinvestment of income affect Holding Period Return?
While calculating the total return on an asset or an investment, the holding period return and any reinvested income is considered. Furthermore, fluctuations in the asset or investment’s market value over varying periods are also considered while calculating the total return on an asset or investment.

Is Holding Period Return the same as Total Return?
No, the holding period return is not the same as the total return on an asset or investment. The total return on an asset or investment takes into account the holding period return, besides other factors like reinvested income. So, holding period return is a part of the total return calculation.

Show More Show Less

Related videos

Bajaj Finserv App for All Your Financial Needs and Goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Explore and apply for co-branded credit cards online.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on No Cost EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.
Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer:

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.

This information should not be relied upon as the sole basis for any investment decisions.Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Show All Text

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.

Show All Text