Net Investment Income

What It Is:

Net investment income is what an investment company receives in capital gains, dividends and interest payments, less administrative fees. 

How It Works/Example:

The formula for net investment income is:

Net Investment Income = Capital Gains + Dividends + Interest Income - Administrative Fees

For example, let's assume Fund ABC is reporting its performance results for the year. It has invested in a portfolio of growth stocks, income stocks and corporate bonds. The growth stocks realized a capital gain of $100,000, the income stocks realized a capital loss of $50,000 but also paid out $10,000 in dividends, and the corporate bonds maintained their value and paid out $20,000 in interest. Fund ABC paid $5,000 in administrative fees.

Using the formula, Fund ABC's net investment income is:

Net Investment Income = ($100,000 - $50,000) + ($10,000) + ($20,000) - ($5,000) = $75,000

Why It Matters:

Investment income is a measure of profit for investment companies such as mutual funds, and it is typically shown on a per share basis. Individual investors can also have investment income, however. Investment income often is taxed differently than other income.