How Are Returns Calculated in Equity Mutual Funds?

Equity mutual fund returns are based on the Net Asset Value (NAV) of the fund, not on the percentage return already displayed before you joined.
The key point is this:
The 25.2% return shown in April is a historical return — it belongs to investors who were already invested before April.
Your friend Ade does not automatically inherit that 25.2% gain.
Here is the practical breakdown.
Example
January 1
You invested ₦100,000 into an equity fund.
Assume the fund’s NAV was:
NAV = ₦10 per unit
So your units are:
By April
The fund has performed well.
Its NAV rises from ₦10 to ₦12.52.
That increase represents:
So your investment value becomes:
Your gain:
₦25,200 profit
25.2% return
Now Ade Invests in April
Ade also puts in ₦100,000.
But now the NAV is already ₦12.52.
So Ade gets fewer units:
Ade is buying at the new higher price.
He does not receive the earlier 25.2% growth because that growth has already happened.
What Happens Next?
Ade only earns returns based on what happens after he invested.
For example:
If NAV rises further from ₦12.52 to ₦13.50:
Then Ade earns about 7.83%.
His investment becomes:
So his profit is around ₦7,824.
Simple Analogy
Think of equity funds like buying land.
You bought land when it was cheap.
By April the land price had already risen 25.2%.
Ade is buying after the increase.
Ade only benefits from future appreciation after his purchase.
Important Concept
When you see:
“1 year return = 25.2%”
It means:
“If you invested one year ago, your money would have grown by 25.2%.”
It does not mean every new investor immediately receives 25.2%.
One More Important Thing
Equity fund returns are usually:
Compounded
Based on:
stock price appreciation
dividends received
reinvestment
fund expenses
That is why NAV changes daily.
So every investor’s actual return depends on:
Entry date
Exit date
Amount invested
Market performance during their holding period