A growing income stream

When it comes to an investment that pays regular income, you may think first of a term deposit. Although a term deposit can provide regular income, it’s important to remember that it doesn’t offer any capital growth, so the income doesn’t grow over time as it does for shares.

The figure below shows the growth in the dividend component of distributions and the growth in the capital value of the Perpetual Industrial Share Fund, compared to the interest and capital value of term deposits over the past 20 years. If you had invested $100,000 in the Fund at the end of December 1990, you would have earned over $200,000 from tax-effective dividends by the end of December 2010, while the value of your investment would have increased around 5 times. However, if you had invested in term deposits they would have earned around $111,000 in interest and the value of your investment would have stayed the same.

The best of both worlds

Clearly, the total income and capital gain earned from the Perpetual Industrial Share Fund over the period far exceeds the total income and capital gain earned from term deposits, even though the initial investment was the same.

The Perpetual Industrial Share Fund has been a source of income and capital growth $100,000 invested in the Perpetual Industrial Share Fund and term deposits (31 December 1990 to 2010)

Source: Perpetual and Reserve Bank of Australia. Methodology: Years to the end of December. Income drawn down annually. To calculate  dividends, the net realised capital gains portion of WealthFocus Industrial Share Fund distributions, excluding capital gains tax, have been reinvested. These reinvestments have been made at the application price, taking into account buy spreads. Dividends (and the benefits of  imputation credits) have not been reinvested and are expressed as an annual payment of the same timing as the term deposit. Results are net of fees. Past performance is not indicative of future performance.