# Total Return Index vs. Price Index: Key Differences and Examples

## What Is a Total Return Index?

A total return index captures [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) and reinvested cash [distributions](https://www.investopedia.com/terms/d/distribution.asp), including [dividends](https://www.investopedia.com/terms/d/dividend.asp) and interest, providing a more complete performance measure than a nominal price index. It not only presents shareholders with a transparent view of growth but also accounts for non-dividend-paying stocks by reflecting [earnings](https://www.investopedia.com/terms/r/retainedearnings.asp) reinvested within companies. This article contrasts a total return index with a price return index, showcasing their key differences through examples like the S&P 500 Total Return Index.

### Key Takeaways

*   A total return index reflects both capital gains and reinvested dividends or interest, offering a truer picture of investment performance.
*   In contrast to price indices, total return indices show higher returns as they incorporate cash distributions.
*   The S&P 500 Total Return Index (SPTR) includes dividends, unlike the standard S&P Index (SPX).
*   The major difference between price return and total return indices is the inclusion of dividends and cash payouts in the latter.
*   Index funds aim to replicate the behavior of a particular index, usually with passive management and lower fees.  
    

## Understanding How Total Return Indexes Work

A total return index may be deemed more accurate than other methods that do not account for the activity associated with dividends or distributions, such as those that focus purely on the annual yield.

For example, an investment might have a 4% annual yield and a 6% increase in share price. While the [yield is only a partial reflection](https://www.investopedia.com/articles/investing/121015/yield-vs-total-return-how-they-differ-and-how-use-them.asp) of the growth experienced, the total return includes both yields and the increased value of the shares to show a growth of 10%. If the index lost 4% in share price instead of gaining 6%, the total return would be 0%.

## Example of a Total Return Index: The S&P 500

The S&P 500 Total Return Index (SPTR) is one example of a total return index. The SPTR differs from the standard [S&P Index (SPX)](https://www.investopedia.com/ask/answers/040915/does-sp-500-index-include-dividends.asp) because it includes dividend gains. Total return indexes work like many [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp), automatically reinvesting all cash [payouts](https://www.investopedia.com/terms/p/payout.asp) into the fund. Most total return indexes are equity-based, but there are also bond indexes that reinvest [coupon](https://www.investopedia.com/terms/c/coupon.asp) payments and redemptions.

Other total return indexes include the Dow Jones Industrials Total Return Index (DJITR) and the [Russell 2000 Index](https://www.investopedia.com/terms/r/russell2000.asp).

## Comparing Price Return vs. Total Return Index Funds

Total returns stand in contrast to price returns, which do not take into account dividends and cash payouts. Including dividends makes a significant difference in the return of the fund, as demonstrated by two of the most prominent.

For instance, the price return for the SPDR S&P 500 ETF (SPY) since it was introduced in 1993 was 789% as of March 10, 2021. The total return price (dividends reinvested), however, is close to 1,400%. The Dow Jones Industrial Average over the 10 years ended in March 2021 had a price return of 162%, while the total return rose to 228%.

## An Overview of How Index Funds Work

Index funds mirror the index they track. For example, an [index fund](https://www.investopedia.com/terms/i/indexfund.asp) associated with the S&P 500 may have one of each of the securities included in the index, or may include securities that are deemed to be a representative sample of the index’s performance as a whole.

The purpose of an index fund is to mirror the activity, or growth, of the index that functions as its benchmark. Index funds need passive management only to adjust and keep pace with their index. Because they require less management, index fund fees are often lower than those of actively managed funds. Additionally, an index fund may be seen as a lower risk since it provides for an innate level of diversification.

## The Bottom Line

A total return index offers a comprehensive view of the performance of an investment by accounting for capital gains as well as dividends and interest payouts. This makes it more reflective of actual investor returns than a price index, which only tracks price changes. Popular examples include the S&P 500 Total Return Index.

When comparing price return and total return figures, the inclusion of dividends and interest payments shows significantly higher returns, providing a more accurate picture of potential investment outcomes.