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. The standardized formula for the 30-day SEC yield consists of four variables: a = interest and dividends received over the last 30-day period b = accrued expenses over the last 30-day 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 30-day SEC yield is: 2 x (((a - b) / (c x d) + 1) ^ 6 - 1) Most funds calculate a 30-day SEC yield on the last day of each month, though U.S. money market funds calculate and report a seven-day 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. The resulting yield calculation shows investors what they would earn in yield over the course of a 12-month period if the fund continued earning the same rate for the rest of the year.
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 30-day 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."
Understanding the 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 exchange-traded 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 12-month period if the fund continued earning the same rate for the rest of the year. It is mandatory for funds to calculate this yield. This yield differs from the Distribution Yield, which is typically displayed on a bond's website.
Calculation of the SEC Yield
Most funds calculate a 30-day SEC yield on the last day of each month, though U.S. money market funds calculate and report a seven-day SEC yield. The standardized formula for the 30-day SEC yield consists of four variables:
a = interest and dividends received over the last 30-day period
b = accrued expenses over the last 30-day 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 30-day SEC yield is:
2 x (((a - b) / (c x d) + 1) ^ 6 - 1)
Example of SEC Yield
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
Once these numbers are plugged into the formula, it looks like this:
30-day yield = 2 x ((($15,500 - $4,000) / (150,000 x $75) + 1) ^ 6 - 1), or 2 x (0.00615) = 1.23%
Related terms:
Annual Percentage Yield (APY)
The annual percentage yield (APY) is the effective rate of return on an investment for one year taking into account the effect of compounding interest. read more
Bond Fund
A bond fund invests primarily in bonds (government, corporate, municipal, convertible) and other debt instruments to generate monthly income. read more
Distribution Yield
A distribution yield is a measurement of cash flow paid by an exchange-traded fund, real estate investment trust, or another type of income-paying vehicle. read more
Dividend
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. read more
Dividend Yield
The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. read more
Exchange Traded Fund (ETF) and Overview
An exchange traded fund (ETF) is a basket of securities that tracks an underlying index. ETFs can contain investments such as stocks and bonds. read more
Money Market Fund
A money market fund is a type of mutual fund that invests in high-quality, short-term debt instruments and cash equivalents. read more
Mutual Fund
A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities, which is overseen by a professional money manager. read more
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is a U.S. government agency created by Congress to regulate the securities markets and protect investors. read more
Timeliness
Timeliness is a stock analysis rating scale, developed by Value Line, that ranks stocks according to their predicted price performance. read more