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 appciation portion of the investment includes all of the market value exceeding the original investment or cost basis. Capital appciation is one of the two main sources of investment returns, with the other being pidend or interest income.

Taobiz explains Capital Appciation

For example, say you purchase a share for $10, which pays a pidend of a $1 per share each year, and is now trading at $15 per share a year later. Your capital appciation 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 appciation 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 appciation tend have more risk than assets chosen for capital pservation and income generation, such as government, municipal bonds, or pidend-paying stocks. Because of this, capital appciation funds are considered appropriate for risk-tolerant investors.