Sunday, January 2, 2011

Income Ratio

A fund's income ratio is the percentage of income earned per share/unit, this is also known as a yield or income yield. The income ratio is calculated by dividing the amount of net income (i.e. dividends and interest less expenses) by the NAV. The income can be as distributed, or simply the amount of income earned in the fund. When it is calculated as all income within the fund, distributed or otherwise, it is basically a way of analysing the returns of the fund i.e. did the fund generate most of its total return from income or from capital gains? The higher the income ratio relative to the total return, the greater reliance the fund has on dividends and interest for generating investor returns. This is an interesting metric to check on potential and existing investments (particularly existing investments, in terms of performance evaluation).

Synonyms: Income yield, Cash return on assets, Income returns

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