A total return index is an index that measures the performance of a group of components by assuming that all cash distributions are reinvested, in addition to tracking the components' price movements.[1] While it is common to refer to equity based indices, there are also total return indices for bonds and commodities.[2]
A total return index is different from a price index. A price index only considers price movements (capital gains or losses) of the securities that make up the index, while a total return index includes dividends, interest, rights offerings and other distributions realized over a given period of time. Looking at an index's total return is usually considered a more accurate measure of performance.[1]
The German stock market index DAX is an example of a total return index,[3] and the S&P 500 index has both a price return and a total return version.[4]