What is Capital growth?
Capital growth is the increase in the value of an investment or asset over time. It is measured on the basis of investment’s current value in relation with the amount invested originally.
It is the most important investment objective of any investor and it depends on how the investment strategy works effectively.
Explanation for Capital Growth
Generally, It is the strategy of asset allocation that seeks the maximization of capital appreciation for the long term. It usually connotes a higher appetite for risk as opposed to an income objective, which may denote risk tolerance to lower level. It can be divided into 2 categories:
High and Moderate Growth.
A portfolio with diversified investment strategy would typically have investments with capital growth potential such as stocks or mutual funds. On the other hand, stocks with best capital growth usually do not pay dividends because they may be able to generate better returns by reinvestment of excess cash flow in their business.
From a tax perspective, taxes on capital growth are different from income. In most jurisdictions, tax on capital growth can be deferred till the sale of the asset or investment. But, taxation on income generated from investment is due annually, and it is a significant advantage of capital growth investment.