Net return

What actually reached the investor after fees and costs were deducted. Net of tax as well, if stated.

Example

A 9.00% gross return less a 1.50% total annual cost leaves a net return near 7.35% before any tax.

Important

Net of fees and net of tax are different claims, and a figure described only as "net" rarely says which. Ask what was deducted before comparing it with anything.

Related terms

• Gross return — What an investment produced before any fees, costs or tax were taken out.
• After-tax return — The return that remains once the tax on it has been paid. The only version of a return an investor can actually spend.
• Fee drag — The compounding cost of fees over time, which is far larger than the fee's annual percentage suggests on its own.

Lessons that explain it

• A fund must return far more than its investments cost to deliver its target to investors — Fees, carried interest and reserves mean a venture fund's portfolio must earn a much higher gross multiple than the net multiple its investors receive. Working backwards shows what a fund needs from its best companies. (12 min)
• Interest minus expected losses minus fees — A lending return is the interest collected, less the share of principal lost to defaults after recoveries, less fees. Expected loss is the number the headline rate leaves out. (12 min)
• Fee drag: why a small percentage becomes a large number — A recurring fee is not a one-off cost. It is removed every year, and the money removed stops compounding - which is why the damage over a long hold is far larger than the fees themselves. (12 min)
• One company usually carries the whole fund — Venture returns come from a handful of outliers, and the fund's own fees and carry take a large slice before the LP sees anything. (13 min)

All 578 terms in the Investing glossary