How do equity funds make money, how are percentage returns calculated, and do they reset to zero each month?

Equity funds make money mainly from rising share prices and dividends. Your investment does not reset to zero when a new month starts, but a percentage showing only that month’s performance may start afresh.

Let me explain with Mama Ngozi’s ₦100,000.

An equity fund brings her money together with money from other investors. A fund manager uses the money mainly to buy shares in companies. Shares are small pieces of ownership in those businesses.

The fund can earn money when those shares rise in price, and when companies pay dividends, meaning part of their profits shared with shareholders. But share prices can also fall, so the fund can lose value. It is not a fixed monthly interest arrangement.

Now, Mama Ngozi does not receive the company shares directly. She receives units in the fund. Think of units as portions of the investment pool.

Using made-up figures, suppose each unit costs ₦10 when she invests. Her ₦100,000 buys 10,000 units, assuming no separate charges.

If the unit price later rises to ₦11, her investment becomes:

10,000 units × ₦11 = ₦110,000.

She has gained ₦10,000. To calculate her percentage gain, divide the gain by her starting amount and multiply by 100:

₦10,000 ÷ ₦100,000 × 100 = 10%.

That example assumes she has not added money, withdrawn money or received a separate cash distribution. Fees and any separate payouts also need to be accounted for when measuring her full return.

Now, what happens when the month ends?

Nothing automatically removes that ₦10,000 gain. She still owns 10,000 units, worth ₦110,000 at that price. But their value can rise or fall afterwards.

Suppose the next month ends with each unit at ₦11.55. Her investment is now worth ₦115,500.

For that second month alone, her gain is 5%, because the value rose from ₦110,000 to ₦115,500. But since she first invested ₦100,000, her total gain is 15.5%, not 5%.

This is why you must check the label beside any percentage on your app.

“Monthly return” measures performance for a particular month. “Month-to-date” measures from the beginning of this month until now, so its measuring period starts afresh each month.

“Year-to-date”, or YTD, measures from the beginning of the current year until now. Its measuring period starts afresh each January.

“Your return” should reflect your own investment history. It may differ from the fund’s advertised return because you bought at a different time or added money later.

Also, some funds keep dividend income inside the fund, while others make payouts under their rules. Check the fund factsheet and ask the provider what the percentage on your screen measures and whether it includes dividends and fees.

The simple lesson is this: the calendar can restart the performance measurement, but it does not wipe away your investment. Your money’s value follows the units you own and what each unit is worth.