Gross Yield

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Gross Yield: Meaning, How It Works, and Examples

Definition

Gross yield is the return on an investment before deducting taxes, fees, and operating expenses. It’s expressed as a percentage and is calculated by dividing the investment’s annual pre-expense income by its current price:

Gross yield = (Annual income before taxes and expenses / Current price) × 100%

How gross yield is used

Gross yield is a simple, quick way to compare the income potential of different investments (rental properties, bonds, funds). It’s useful as an initial screening metric, but it does not reflect the investor’s actual net return because it ignores costs such as maintenance, vacancies, management fees, and taxes.

Examples

Gross yield vs. net yield

  • Gross yield: income before expenses and taxes. Good for quick comparisons.
  • Net yield: income after all expenses, taxes, vacancies, and fees. Net yield shows the real return to the investor and is essential for decision-making.

Differences can be large for asset classes with significant operating costs (e.g., rental real estate) or where management and brokerage fees apply (e.g., mutual funds).

Common yield measures (brief)

  • Nominal yield: The coupon rate of a bond expressed as a percentage of par value (fixed over the bond’s life).
  • Current yield: Annual coupon (or dividends) divided by the bond’s current market price — shows the one-year income return at the current price.
  • Yield to Maturity (YTM): The internal rate of return expected if a bond is held to maturity and all payments are received as scheduled; it incorporates coupon income and capital gain/loss from purchase price vs. par.

Mutual fund yields

  • Dividend yield: Annual income distributed by the fund divided by the fund’s net asset value (NAV), expressed as a percentage.
  • SEC yield: A standardized, annualized measure required for reporting bond-fund yields; it reflects recent income after fund expenses and is intended for fund-to-fund comparisons.

Practical guidance and limitations

  • Use gross yield for quick comparisons, but always calculate net yield before investing.
  • For real estate, subtract expected operating expenses, vacancy rates, insurance, taxes, and capital expenditures to estimate net yield.
  • For funds, account for management fees, loads, and brokerage costs.
  • Gross yield ignores capital appreciation/depreciation, tax effects, default risk (for credit instruments), and timing/reinvestment assumptions.

Key takeaways

  • Gross yield measures an investment’s pre-expense, pre-tax income return as a percentage of price.
  • It’s useful for initial comparisons but can overstate real returns because it excludes costs and taxes.
  • Always compare gross yield alongside net yield and consider the specific costs and risks associated with each investment.