The fund’s year-end income ratio reveals the percentage of current income earned per share. It is calculated by dividing the fund’s net investment income by its average NAV. The net investment income is the total income of the fund, less operating expenses. Morningstar does not calculate income ratios. The figure is culled directly from the per-share and information sections in fund shareholder reports.
The income ratio can be used as a gauge of how much of the fund's total return comes from income. A high income ratio suggests that the underlying fund depends on dividend distributions or coupon payments to fill out its total return. Conversely, a low income ratio suggests that capital appreciation very likely dominates the fund’s total return. It is entirely possible for funds to have a negative income ratio. Since expenses are taken directly out of income (such as dividend or coupon payments), funds with few debt obligations or dividend-paying equities may have negative income ratios.