Difference Between Distribution Yield and SEC Yield (With Table)

People are generally confused with the stock market terms, and two of the most confusing terms related to funds are Distribution yield and SEC yield. They both are connected to a loan or a bond that a lender gives to companies as an investment. Later, the profit made is shared.

The distribution yield is a way of quantifying payments that are made yearly to the investors. In contrast, SEC (Securities and Exchange Commission) yield is also a way of quantifying payments that help to compare funds that comes under the authority of the Securities and Exchange Commission. Both are not dependent on companies’ past performance.

Distribution Yield vs SEC Yield

The difference between SEC yield and Distribution yield is that Distribution yield is estimated yearly, which is within 12 months and gives a clear picture of profits made and downfalls that happened to a company. And SEC yield is calculated monthly, which is in 30 days.

A distribution yield is a method of quantifying the sum made yearly to the investors as their repay fund. As it is calculated yearly, it helps a fund or a bond to grow till its maturity. Formula: dividend amount for 30 days multiplied by 365 days divided by the net worth of every month end.

On the other hand, SEC yield is a way of quantifying the sum that helps to compare funds, Which works under the authority of the United States federal government. It is estimated every month, and it is based on the history of repays made by the borrowers. It gives an accurate result as it is calculated every month.

Comparison Table Between Distribution Yield and SEC Yield

Parameters of ComparisonDistribution YieldSEC Yield
DefinitionThe distribution yield is a way of estimating fee that is made yearly to the investors.SEC yield is a way of quantifying the sum that helps to compare funds, which works under the authority of the United States federal government.
CalculationIt is calculated yearly or annually. It is quantified monthly that is in a 30-day time span.
AccuracyIt is a little bit less accurate than SEC yield. It is more accurate as it is estimated every month, which is a 30-day time span.
Past performance dependency.It does not depend on the past performance of a company.It also does not depend on past performance.
Future performance estimation. It does not give any information about future performance.The whole estimation of the future performance cannot be done.

What is Distribution Yield?

The distribution yield is a method of estimating the sum made yearly to the investors as their repay fund. As it is calculated annually, that is, in 12 months, it helps a fund or a bond to grow till its maturity. But it is not much accurate because there is a total calculation, and if it doesn’t give profit, it is not worth waiting.

The distribution yield cannot be estimated by the companies past performance. No one can tell if it will be profitable or non-profitable. The calculation formula is dividend amount for one month multiplied by twelve months divided by the net worth of every month end. In distribution yield, people cannot compare two funds easily.

Distribution yield is comparable to dividends as those are also calculated yearly. These yields are usually for individuals and stockholders.

What is SEC Yield?

SEC yield is a way of quantifying the sum that helps to compare funds, Which works under the authority of the United States federal government. It is estimated in a 30-day time span, which helps keep a sharp observation of each investment made.

SEC yield is based on the history of repays made by the borrowers. But it does not tell you about your future profit as the profit made or loss made is independent of the past performance of the companies. As compared to Distribution yield, the SEC yield is more preferred because of its monthly evaluation.

There is also a 7 day SEC yield done by the United States federal government. This also tells about each fund invested. One cannot precisely measure the repays made but can compare the performance of each yield.

Main Differences Between Distribution Yield and SEC Yield

  1. The distribution yield is estimated yearly, which is in 12 months and gives a clear picture of profits made and downfalls that happened to a company. In contrast, SEC yield is calculated monthly, which is in 30 days.
  2. SEC yield compares two funds accurately, but Distribution yield does not give a clear comparison.
  3. The distribution yield is calculated when a bond reaches its maturity. In contrast, in SEC, yield estimation is done monthly, which is 30 days, so the complete calculation is done by distribution yield.
  4. Sometimes one can predict minimal future profit with SEC yield but cannot with Distribution yield.
  5. The distribution yield can be compared to dividends, while the SEC yield cannot be compared to the dividends.

Conclusion

In today’s world, everybody wants to earn profit from the investment they made or funds they buy, and for that purpose, there are several calculation methods done by the government. One is Distribution yield which is done yearly by the United States federal government. And Another is the SEC yield which is estimated monthly and is used to compare profits made by the funds.

Distribution yield is calculated when a bond reaches its maturity, while in SEC, yield estimation is done monthly, which is 30 days. Therefore, the complete calculation is done by distribution yield. But SEC yield is always preferred because of its monthly estimation as one can predict their minimal profit.

No yield can tell how much profit will be gained by the end of the year, but a minimal prediction can be made by SEC yield. And it also compares the profit made by the funds each month. Which makes it more profitable for estimation purposes.

References

  1. https://www.cabdirect.org/cabdirect/abstract/20123084656
  2. https://www.jstor.org/stable/41969726