What is Holding Period Return?

Holding Period Return (HPR) is the return received during the holding period of a portfolio of assets or individual assets. The holding period is the period of time when the stock is kept in one’s possession; that is, it is the time from buying an asset till it gets sold in the market.

The HPR is the total market return received from holding a set of assets or a singular asset over a given period. It is usually expressed as a percentage value. The HPR is calculated from the total returns of either the set of assets or the portfolio. The consideration is whether there has been any palpable change in the value of the asset or not. Holding or Return yield is used while comparing the returns between two or more investments that have been held by the investor for different time periods.

HPR in Investment Management

HPR is a fundamental issue of investment management as the calculation of HPR provides a comprehensive view of the overall financial performance of an asset or investment. It considers the appreciation of the value in the investment as well as the distributions of dividends related to the asset. HPR is applied to identify the appropriate tax rate too.

Holding Period Yield Formula

Holding period returns can be calculated using a formula. HPR calculators are easily available online, so one does not need to worry about calculating the HPR value even if they are not quite into finance. The formula for calculation of HPR is−

$$\mathrm{HPR =\frac{[Income + (End\:of\:Period\: Value − Initial\:Value)]}{Initial\:Value}}$$

Any returns that are calculated for various regular time periods, such as quarters, half years, or years, can be used according to their holding time period return too.

HPR is, therefore, the total return received or lost as a result of holding a portfolio of assets or individual assets for a certain period of time. HPR is typically shown in a percent value. One needs to input the values of returns from the portfolio or asset as its income including any changes in income value to get the correct HPR value. HPR is also used to compare the returns of two or more investments for different time periods that are held by the investor.

Example of Holding Period Return

Three years ago, Raj invested INR 20,000 in the shares of XYZ Corp. Each year, the company distributed dividends to its shareholders. Each year, Raj received INR 500 in dividends. Note that since Raj received INR 500 in dividends each year, his total income is INR 1500. Today, Raj sold his shares for INR 25,000, and he wants to determine the HPR of his investment.

Using the HPR formula, we can get the result as −

$$\mathrm{HPR =\frac{[1500 + (25000 − 20000)]}{20000}=\frac{6500}{20000}= 32.5 \%}$$

Hence, Raj's holding period return on this investment is 32.5%.