Nominal Rate Of Return

AAA

DEFINITION of 'Nominal Rate Of Return'

The amount of money generated by an investment before expenses such as taxes, investment fees and inflation are factored in. For example, detailed data on a mutual might show a fund's nominal rate of return as 10%, but also show its return after taxes on distributions and sale of fund shares is only 7%. Investors should look beyond an investment's nominal rate of return to get a true idea of what their investment will earn.

INVESTOPEDIA EXPLAINS 'Nominal Rate Of Return'

Municipal bonds, for example, generally have a lower nominal rate of return than corporate bonds, but the nominal return and the after-tax return of Munis is usually identical since Munis are usually tax exempt, whereas income earned from corporate bonds will be subject to taxation. Corporate bonds are also subject to tax on capital gains when they are sold, giving them an actual rate of return that may be significantly lower than their nominal rate of return.



RELATED TERMS
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction ...
  2. Internal Rate Of Return - IRR

    The discount rate often used in capital budgeting that makes ...
  3. Time-Weighted Rate of Return

    A measure of the compound rate of growth in a portfolio. Because ...
  4. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. ...
  5. Rate Of Return

    The gain or loss on an investment over a specified period, expressed ...
Related Articles
  1. Introduction To Treasury Inflation-Protected ...
    Bonds & Fixed Income

    Introduction To Treasury Inflation-Protected ...

  2. Financial Planning: It's About More ...
    Retirement

    Financial Planning: It's About More ...

  3. Introduction To Investment Diversification
    Investing Basics

    Introduction To Investment Diversification

  4. Curbing The Effects Of Inflation
    Bonds & Fixed Income

    Curbing The Effects Of Inflation

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center