One of the most important goals for any smart investor is to thoroughly understand the nature of investment income. All of us invest our hard-earned money in order to profit from the investments and make more money, don’t we! In the world of investing, many thousands (and perhaps millions) of investment options are available to us. So, how do we judge which instrument (investment option) to invest in and which to reject?
We can give a good answer to this question only if we fully understand investment income. The purpose of all investment is to make profits. Thus, the key to identifying which investment option is better than others lies in identifying which investment option offers greater income. (Sometimes, it may also be important to understand the frequency and timing of incomes received from an investment.) So, let us quickly understand the nature of investment income.
Types of Investment Income
As we all know, the world of investments offers massive amount of choice – there are thousands and thousands of different income producing investment options available for investors. While each of these investment options would generate some income, the nature of the income may vary. Typically, investment income may be in the form of capital gains, rent, dividend or interest or a mix of some of these.
As the nature of incomes vary, different investments may be taxed differently. For example, in certain cases, long-term capital gains may be taxed at a lower rate than short-term capital gains. Similarly, income from some long-term bonds or from long-term deposit accounts may be taxed at low rates. Further, income from certain bonds issued by government bodies may be entirely tax-free. The tax rate applicable on an investment is an important factor in evaluating that investment option. This is because the amount (net income) that you would gain from an investment is the income after tax.
Let us now understand each of the different types of investment income.
No comments:
Post a Comment