How is unrealized loss or gain treated in total returns?

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Unrealized gains are profits from the stock price increase over the buying price of the stocks one still owns. The gains are unrealized as you have not realized the increase in profits in your bank account yet. In such cases, one won't understand the gain until one sells the stock, and the price could change again before the stocks are sold.

Unrealized gains do not consider the taxes one will owe when he or she does cash out. Neither does it consider the transaction commissions to sell the stock. When the investors sell the stock, they will have to pay taxes on the realized gains.

More about Unrealized Loss and Gain

Gains or losses are "realized" when a share that one owns is sold. The gains and losses are also called "paper" profits or losses. An unrealized loss takes place when the value of a stock decreases after one buys it but has not sold it yet.

When a large loss stays unrealized, chances are, the investor is hoping the stock's fortunes will turn around sometime soon. He or she may also hope that the stock will rise above the original purchase price so that they can have an unrealized gain for the time they keep the stock in their portfolio of shares.

Here is how to find the value of the realized assets’ loss or gain −

Step 1 − Multiply the price of each share by the number of shares purchased to find the total value of the stock. For example, if you bought 100 shares at INR 20 per share, your cost is INR 2000.

Step 2 − Multiply the current price by the total number of shares to get the current value of the stock. Continuing the example, if the stock is now worth INR 25 per share, multiply INR 25 by 100 shares to get INR 2,500.

Step 3 − Subtract your first cost from the current value to find the unrealized gain. In this example, subtract your cost of INR 2,000 from the current value of INR 2,500 to find your unrealized gain is INR 500.

Note − Realized net gain is achieved by subtracting the buying prices of the share from the current price. 

Published on 17-Sep-2021 09:15:25