Capital Appreciation

AAA

DEFINITION of 'Capital Appreciation'

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.

INVESTOPEDIA EXPLAINS '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

    1) Financial assets or the financial value of assets, such as ...
  2. Capital Gain

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

    An increase in the value of an asset over time. The increase ...
  4. Unrealized Gain

    A profit that exists on paper, resulting from any type of investment. ...
  5. Recognized Gain

    When an investment or asset is sold for an amount that is greater ...
  6. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
Related Articles
  1. The Advantages Of Investing In Aggressive ...
    Investing Basics

    The Advantages Of Investing In Aggressive ...

  2. What Are A Stock's
    Investing Basics

    What Are A Stock's "Fundamentals"?

  3. Capital Gains Tax 101
    Taxes

    Capital Gains Tax 101

  4. Why Dividends Matter
    Fundamental Analysis

    Why Dividends Matter

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center