Capital Appreciation

Loading the player...

What is 'Capital Appreciation'

Capital appreciation is a rise in the value of an asset based on a rise in market price. Essentially, the capital that was invested in the security has increased in value, and the capital appreciation portion of the investment includes all of the market value exceeding the original investment or cost basis. Capital appreciation is one of the two main sources of investment returns, with the other being dividend or interest income.

BREAKING DOWN 'Capital Appreciation'

For example, say you purchase a share for $10, which pays a dividend of a $1 per share each year, and is now trading at $15 per share a year later. Your capital appreciation in the investment is $5, or 50%, as the price of the share has increased $5 over your purchase price or cost basis. Your interest income return is $1, or 10%, for a total return on the shares is $6 or 60%.

Capital appreciation is often a stated investment goal of many mutual funds. These funds look to find investments that will rise in value based on increased earnings or other fundamental metrics. Investments targeted for capital appreciation tend have more risk than assets chosen for capital preservation and income generation, such as government, municipal bonds, or dividend-paying stocks. Because of this, capital appreciation funds are considered appropriate for risk-tolerant investors.

RELATED TERMS
  1. Capital Appreciation Fund

    A mutual fund that attempts to increase asset value primarily ...
  2. Capital Growth

    The increase in value of an asset or investment over time. It ...
  3. Capital Gains Exposure - CGE

    An assessment of the extent to which a stock fund or other similar ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Currency Appreciation

    An increase in the value of one currency in terms of another. ...
  6. Total Return

    When measuring performance, the actual rate of return of an investment ...
Related Articles
  1. Investing

    Calculating Capital Appreciation

    Capital appreciation is an increase in an investment’s market price.
  2. Managing Wealth

    Explaining Appreciation

    Appreciation refers to an increase over time in the value of an investment or asset.
  3. Managing Wealth

    Understanding Total Returns

    Total return measures the rate of return earned from an investment over a period of time.
  4. Investing

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  5. Investing

    Understanding Capital Investment

    Capital investment is a term that describes a company’s expenditures for long-term assets used in the operation of its business.
  6. Markets

    What's a Return of Capital?

    A return of capital is an investment return that is not considered income.
  7. Investing

    Calculating Capital Gains Yield

    Capital gains yield refers to a security’s appreciation or depreciation during the time it’s held.
  8. Managing Wealth

    How Will Your Investment Make Money?

    Discover the basic types of investment income and which asset classes pay them.
  9. ETFs & Mutual Funds

    The Basics of Income Tax on Mutual Funds

    Learn about the basics of income tax on mutual funds, including what types of income may be subject to the capital gains tax rate.
  10. Managing Wealth

    Yield vs. Total Return: How They Differ

    Understanding yield vs. total return is essential in constructing portfolios that meet income generating needs while providing growth for the future.
RELATED FAQS
  1. What is the difference between capital gains and investment income?

    Learn about the difference between capital gains and other types of investment income, such as dividends paid on stock or ... Read Answer >>
  2. What is the lowest capitalization rate before an investment becomes unprofitable?

    Learn about different levels of profitability associated with investments featuring similar capitalization rates. Explore ... Read Answer >>
  3. What is the difference between capital investment decision and current asset decision?

    Learn how capital investment decisions are long-term funding decisions, while current asset decisions are short-term funding ... Read Answer >>
  4. How does total capital investment influence economic growth?

    Discover the basic relationship between capital investment and economic growth, and why improving the capital structure increases ... Read Answer >>
  5. How is working capital different from fixed capital?

    Understand the differences between working capital and fixed capital, including definitions and examples of how businesses ... Read Answer >>
  6. What is the difference between market capitalization and equity?

    Understand the difference between market capitalization and equity, two primary measurements used to evaluate the worth of ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center