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Percentage gain helps investors track investment performance by measuring the increase in an asset’s value as a percentage of the original investment. This article explains how to calculate percentage gain and its importance for evaluating investments.
Percentage gain measures the increase in an investment's value as a percentage of the original amount, helping investors track performance and compare returns across assets. It’s a vital tool for evaluating investment success and growth over time.
To calculate percentage gain, you use the following formula:
Percentage Gain = ((Final Value - Initial Value) / Initial Value) × 100
This formula calculates the difference between the final value of an asset and its initial value, then divides it by the initial value and multiplies by 100 to express it as a percentage.
If you buy a stock for ₹1,000 and sell it for ₹1,200, the percentage gain is calculated as:
Percentage Gain = ((1200 - 1000) / 1000) × 100 = 20%
This means that the investment gained 20% in value.
Percentage gain is a crucial tool for investors for several reasons:
Investment Comparison: Percentage gain allows investors to compare the performance of different investments, regardless of their size. It provides a clear way to evaluate which investments are performing better.
Performance Tracking: Investors can track how their investments have grown over time, helping them assess whether their strategy is working.
Risk Evaluation: By understanding percentage gain, investors can identify whether the growth of an investment justifies the associated risks.
There are different types of gains that are relevant to investors, and each type can be calculated using percentage gain:
Short-term capital gains are profits from assets sold within a short period, less than 12 months for listed shares and equity mutual funds, and less than 36 months for other assets like real estate or debt funds. These gains are often taxed at a higher rate compared to long-term capital gains.
Long-term capital gains are profits from assets held for more than 36 months. These gains are typically taxed at a lower rate, providing tax benefits to investors who hold their investments for longer periods.
An unrealised gain is the increase in the value of an asset that has not yet been sold. It represents potential profit that exists on paper but has not been realised through a transaction. Realised gains occur when the asset is sold at a profit.
Percentage gain can be applied to various types of investments, such as stocks, real estate, and mutual funds.
If you purchase a stock for ₹1,000 and sell it for ₹1,500, the percentage gain would be:
Percentage Gain = ((1500 - 1000) / 1000) × 100 = 50%
If you buy a property for ₹5,00,000 and sell it for ₹6,00,000, the percentage gain would be:
Percentage Gain = ((600000 - 500000) / 500000) × 100 = 20%
If a mutual fund grows from ₹10,000 to ₹12,500, the percentage gain would be:
Percentage Gain = ((12500 - 10000) / 10000) × 100 = 25%
Percentage gain is often used in conjunction with other financial metrics, such as profit margin and return on investment (ROI), to give a comprehensive view of investment performance.
Percentage gain is related to profit margin, which measures how much of each unit of revenue is converted into profit. Both metrics are used to evaluate profitability.
ROI is another important metric for investors. Like percentage gain, ROI helps investors measure the return on an investment relative to its cost.
Capital gains, both short-term and long-term, are calculated using percentage gain. This metric is essential for understanding the tax implications of an investment's profit.
Understanding percentage gain is essential for investors who want to track their investment performance and make informed decisions. By calculating percentage gain, investors can compare the success of different investments, monitor their portfolio, and assess their overall investment strategy. It is a vital tool for managing and growing wealth over time.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Percentage gain is the increase in the value of an investment expressed as a percentage of the original value.
How do you calculate Percentage Gain?
The formula is: Percentage Gain = ((Final Value - Initial Value) / Initial Value) × 100
Percentage gain helps investors measure and compare the performance of different investments, track growth, and assess risk.
Short-term gains apply to assets held for less than 36 months, often taxed at a higher rate, while long-term gains apply to assets held longer and are taxed at a lower rate.
Unrealised gain refers to the increase in the value of an asset that has not been sold yet, as opposed to realised gain, which occurs when the asset is sold.
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Posted on 18 Aug
Geetanjali Lachke
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