Current income
Return that arrives periodically while you still hold the investment — rent, interest or dividends — as against capital gains, which are realised only when the investment is sold.
In plain language
An investment can pay you in two ways. The workbook names them in Chapter 1: regular (or periodic) income, also known as current income, and capital appreciation, or capital gains.
The difference is whether you have to sell. Current income is receivable periodically, without having to sell the investment — the rent from a flat, the interest on a bond, the dividend on a share. Capital gains can be realised only when one sells the investment.
An investor who needs money every month to live on is really asking for current income. An investor building wealth for a goal twenty years away may not need any at all.
How it works
Chapter 1 runs the four asset classes past this test, and the pattern is examinable:
| Asset class | Current income | Capital appreciation |
|---|---|---|
| Real estate | Yes — rent | Yes |
| Fixed income | Yes — interest, agreed at issue | Usually none if bought at issue and held to maturity; possible gain or loss if bought or sold in the secondary market |
| Equity | Possible — dividends, with no guarantee of how much or whether anything is paid | Yes |
| Commodities (gold, silver) | None | The only source of return |
Two features sit behind the table. First, only the lender's receipts are known in advance: a bond's interest and principal are agreed at the time of issue, while the cash flows of the three ownership assets are unknown. Second, the Chapter 1 sample question asks where a greater portion of returns from conventional debt investments comes from — the answer is interest income, which is current income.
Chapter 7 then shows how the two parts are added together. Total return = [(End value − Begin value) + Dividend] ÷ Begin value × 100. The dividend is the current-income part; the change in value is the capital part.
A worked example
Suresh, a retired bank officer in Madurai, has Rs 20 lakh and needs money every month. All figures below are illustrative.
| Where the Rs 20 lakh goes | Current income a year | What else he gets |
|---|---|---|
| A flat let out at Rs 12,000 a month | Rs 1,44,000 rent | Possible appreciation — but high transaction and maintenance costs, and he cannot sell a part of the flat |
| Bonds with a 7.5% coupon, held to maturity | Rs 1,50,000 interest | Principal back at maturity; almost no capital gain |
| Gold | Nil | Only whatever the price does |
| Shares | Dividends, not guaranteed | Appreciation over long periods |
Only the first two actually solve his monthly problem, and only the bond tells him the amount in advance.
Chapter 7's own total-return case shows both parts at once. Ashish invests Rs 1,00,000 at an NAV of Rs 10 (10,000 units). The scheme pays a dividend of Rs 2 a unit (Rs 20,000) and the NAV rises to Rs 12 (value Rs 1,20,000). Total return = (20,000 + 20,000) ÷ 1,00,000 = 40 percent — half of it current income, half capital gain.
Why NISM asks about it
Chapter 1 (Investment Landscape) introduces current income under Returns in section 1.1.1 and uses it to compare the asset classes in 1.2; the Chapter 1 sample question on debt returns (interest income) turns on it. Chapter 7.1.4 (Total return) combines dividend income with capital gains, and Chapter 9.3.2 explains why a mutual fund IDCW is not income in the same sense.
Common exam traps
- Gold and silver generate no current income. An investor in them counts only on capital appreciation.
- A bond bought at issue and held to maturity usually produces no capital gain — its return is almost all current income.
- Equity dividends are not guaranteed in amount or at all, unlike bond interest.
- A mutual fund IDCW is not free income. The NAV falls by the amount distributed, which is why the option was renamed Income Distribution cum Capital Withdrawal from 1 April 2021.
- An exit charge does not reduce liquidity; it reduces returns. The workbook treats it as a trade-off between liquidity and return.
Where this is taught
- Series V-A · Chapter 1: Investment Landscapeintroduced here
- Series V-D · Chapter 1: Investment Landscapeintroduced here
- Series V-B · Chapter 1: Investment Landscapeintroduced here
- Series XXI-A · Chapter 1: Investmentsintroduced here
Related terms
- Asset classA grouping of investments with similar characteristics. The workbook names four broad asset classes — real estate, commodities, equity and fixed income — each with its own sub-categories.
- Capital appreciationThe gain made when the market value of an investment rises above what you paid for it — as distinct from income, which is the interest or dividend the investment pays you along the way.
- IDCWThe renamed dividend option of a mutual fund scheme — a payout that is part income and part return of your own capital, which is why the NAV falls by exactly the amount distributed.
- Fixed DepositMoney placed with a bank for a fixed term at an agreed rate of interest. Safe and simple, but the interest is taxable, and TDS applies once interest crosses a stipulated amount.
- Safe haven assetAn asset investors turn to when an economy or a currency fails. In the workbook the safe haven asset is gold — considered by many the final shelter, though the opposite camp argues strongly against it.
- Physical assetsTangible assets such as real estate, gold and other precious metals — held for appreciation, treated as natural inflation hedges, and illiquid, unregulated and large-ticket by nature.