Legal Definitions - portfolio income

Portfolio income refers to earnings generated from investments, rather than from active employment or a business in which one materially participates. It typically includes income from assets like stocks, bonds, and mutual funds.

Here are some examples to illustrate portfolio income:

• Example 1: Stock Dividends

  Sarah owns shares in a publicly traded technology company. Each quarter, the company distributes a portion of its profits to shareholders in the form of dividends. When Sarah receives these dividend payments, they are considered portfolio income because they are earnings from her investment in the company's stock, not from any work she performs for the company.

• Example 2: Bond Interest

  David invested in a corporate bond issued by a manufacturing firm. The bond pays him a fixed interest rate twice a year. The interest payments David receives from this bond are classified as portfolio income. This is because the income is generated purely from his investment in the bond, representing a return on his capital, rather than from any active business operations or employment.

• Example 3: Capital Gains from Mutual Funds

  Maria invested a sum of money in a growth mutual fund. After several years, the value of the fund's underlying investments increased significantly. When Maria decides to sell her shares in the mutual fund, the profit she makes from the sale (the difference between her selling price and her original purchase price) is a capital gain. This capital gain is considered portfolio income because it arises directly from the appreciation and subsequent sale of her investment asset.