What is Capital Gain?

Capital Gain is the profit realized from the sale of an asset, such as stocks, bonds, real estate, or other investments, at a price higher than its purchase price. It is calculated as the difference between the sale price (also known as the sale proceeds) and the original purchase price of the asset. Capital Gain plays a significant role for investors while making investment decisions. It represents the profitability of an investment and contribute to the overall growth of an investment portfolio.

Key features of Capital Gain include:

• Realization through Sale: Capital Gains are realized only when the asset is sold or disposed of. Until then, any increase in the value of the asset is considered as unrealized gain.
• Profit from Asset Appreciation: Capital Gains represent the profit earned from the appreciation in the value of an asset over time. It can be due to market demand, improvements in the asset’s underlying value, or changes in market conditions.
• Taxation: Capital Gains are typically subject to taxation when the asset is sold. Taxation of capital gains varies based on factors such as the holding period of the asset and the tax laws. Generally, long-term capital gains are taxed at lower rates compared to short-term capital gains.
• Reinvestment: Investors may choose to reinvest their capital gains into other investments. This can be done to defer taxes or to continue building their investment portfolio.

Dividends and Capital Gains are two ways in which investors can earn returns on their investments, particularly in stocks and other securities. However, they represent different sources of income and are derived from different aspects of investment performance. Dividends are distributions of a company’s profits to its shareholders. Capital Gains, on the other hand, are the profits realized from the sale of investments such as stocks, bonds, or real estate.