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Unrealised gains and losses refer to the increase or decrease in the value of an investment that you still hold and have not yet sold. They are called unrealised because the gain or loss becomes final only when you sell or otherwise dispose of the asset.
This article explains unrealised gains and losses, how to calculate them, and how they are realised and taxed.
Key Takeaways
- Unrealised gains and losses show the profit or loss on an investment you still own. Their value can change as the market prices move.
- Unrealised gains mean your investment is worth more than what you paid, and unrealised losses mean it is worth less.
- The gain or loss becomes realised when you sell or transfer the investment.
- Unrealised gains and losses are not subject to capital gains tax until you sell or transfer the investment.
- Stock splits and bonus issues change the number of shares and the price per share, but not your total wealth.
- Holding a losing position only in the hope of breaking even can lead to deeper losses.
- Tracking them helps you check your portfolio's performance, manage risk, and maintain your planned asset allocation.
What are Unrealised Gains?
Unrealised gains are the increase in the value of your investment that you currently hold. They represent a paper profit, calculated by comparing the asset's current market value with its purchase price.
The gain is unrealised because no sale or other taxable transfer has taken place, and its value can continue to change with market prices.
It can be calculated by using the following formula:
Unrealised Gain = (Current Market Price − Purchase Price) × Number of Units Held
Or you can also use:
Unrealised Gain = Current Market Value − Total Cost of Acquisition
Let us understand with an example!
You buy 147 shares of a company at ₹590 per share. This makes your total investment ₹86,730. After a few months, the share price rises to ₹675, and you continue to hold the shares.
So here:
Unrealised Gain = (₹675 − ₹590) × 147 = ₹12,495
Your investment has gained ₹12,495 in value on paper. If you sell these shares later, the gain becomes realised.
What are Unrealised Losses?
Unrealised losses are a decrease in the value of an investment you currently hold. They represent a paper loss and are calculated by comparing the asset's current market value with its purchase price.
The loss is unrealised because you have not sold the asset yet. Its value can continue to change with market prices, meaning the loss may increase, decrease, or disappear if the price recovers.
It is calculated using the formula:
Unrealised Loss = (Purchase Price − Current Market Price) × Number of Units Held
Or you can also use:
Unrealised Loss = Total Cost of Acquisition − Current Market Value
Here is an example:
You buy 125 shares of a company at ₹480 per share. This makes your total investment ₹60,000. After a few months, the share price falls to ₹410, but you continue to hold the shares.
So here:
Unrealised Loss = (₹480 − ₹410) × 125 = ₹8,750
Your investment has lost ₹8,750 in value on paper.
If you continue holding the shares, the unrealised loss may change as the market price moves. If you later sell the shares, the loss becomes realised. A paper loss can also keep growing while you wait, so it should not be treated as harmless just because it is not yet booked. This is explained in the section on holding bias below.
Unrealised vs Realised Gains and Losses
The key difference between unrealised and realised gains and losses is whether you have sold the investment.
| Basis | Unrealised Gains and Losses | Realised Gains and Losses |
| Meaning | Potential profit or loss on an investment that you still hold. | Actual profit or loss recorded when you sell or transfer an investment. |
| When It Occurs | When the market price moves above or below your purchase price while you continue to hold the asset. | When you sell the asset at a price different from its purchase price. |
| Nature | It is often called a paper gain or paper loss because you have not sold the investment. | The profit or loss is locked in based on the sale transaction. |
| Value Changes | It can increase, decrease or disappear as the market price changes. | It generally remains fixed once the transaction is completed. |
| Tax Treatment | A change in market value does not by itself result in a capital gains tax event from the sale of the asset. | The sale or transfer may result in a taxable capital gain or a capital loss, subject to applicable tax rules. |
When Does an Unrealised Gain or Loss Become Realised?
An unrealised gain or loss becomes realised when you sell or otherwise transfer the investment. A realised gain or loss is generally determined by comparing the sale value with the cost of acquiring the asset.
In India, a transfer generally includes the sale, exchange, or relinquishment of a capital asset, along with certain other transactions specified under tax law.
Profits or gains arising from the transfer of a capital asset may be chargeable to tax under the head Capital Gains, subject to the applicable provisions, as governed by Section 45 of the Income-tax Act, 1961, and under Section 67 of the Income-tax Act, 2025.
Where can You see Unrealised Gains and Losses?
You can generally view unrealised gains and losses on your trading or investment platform under sections such as:
- Holdings or Portfolio: This section shows the investments that you currently own. You can check details such as the quantity held, average purchase price, current value, and profit or loss.
- Positions or Position Summary: This section generally displays your open trading positions, including intraday and derivative positions.
- Reports or P&L Statements: Some trading platforms also provide profit and loss reports that help you review realised and unrealised gains or losses for a selected period.
How Splits, Bonus Issues and Average Cost Affect Unrealised P&L
Your unrealised P&L depends on the average purchase price and the number of units you hold, and the current mark price.
Weighted average cost (WAC): When you buy the same share at different prices, your platform usually shows one average price. It is worked out as total money invested ÷ total units held.
For example, if you buy 100 shares at ₹500 and another 100 at ₹400, your total cost is ₹90,000 and your WAC is ₹450 per share. If the price is now ₹420, your unrealised loss is (₹450 − ₹420) × 200 = ₹6,000. The second purchase lowered your average price, but it did not remove the loss.
Stock splits and bonus issues: In both cases, the number of shares you hold goes up and the price per share falls in proportion. This means that the total value of your investment stays the same. Your average purchase price is adjusted in the same proportion, so your unrealised P&L in rupees does not change.
For example, you hold 100 shares bought at ₹500 and the price is now ₹600, so your unrealised gain is ₹10,000. After a 2-for-1 split, you hold 200 shares, the price is ₹300, and your average price is ₹250. Your unrealised gain is still (₹300 − ₹250) × 200 = ₹10,000.
Tax Treatment of Unrealised Gains and Losses in India
Unrealised gains and losses are not taxable as capital gains or allowed as capital losses.
Section 45 of the Income-tax Act, 1961, provided that profits or gains from the transfer of a capital asset are taxable in the year of transfer.
The Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026, carries this rule in Section 67.
A transfer can include a sale, exchange, relinquishment, and certain other transactions defined under the Act.
Why do Unrealised Gains and Losses Matter to Investors?
Unrealised gains and losses help you track how your current investments are performing before you sell them. They can matter in several ways:
- Portfolio Tracking: They show how much the market value of your existing holdings has increased or decreased compared with your purchase cost. This helps you monitor whether your investments are moving in line with your financial goals.
- Risk Management: A significant unrealised loss can show how much value an investment has lost and whether it has increased the overall risk of your portfolio. Similarly, large gains can cause it to occupy a bigger share of your portfolio than originally intended.
- Portfolio Rebalancing: As discussed above, at times, some investments may gain more than others, and your asset allocation can move away from your original investment plan. Tracking unrealised gains and losses can help you identify when your portfolio needs rebalancing.
- Tax Planning: Since they are not realised until sale, they can help you plan when to sell assets to offset future tax liability.
Holding Bias: Why Traders Hold Losing Positions too Long
Many investors find it easier to sell a profitable position than a losing one. This is known as the disposition effect, or holding bias: the tendency to sell winners too early and hold losers too long.
It happens because a loss feels final only when it is booked. Many investors keep telling themselves it is only a "paper loss" as long as they do not sell, and they hope the price will come back to their purchase price.
This can be costly for retail traders. As per the research conducted by Terrance Odean in 1998, he found that the stocks investors held on to as losers did not recover better than the winners. To reduce this bias, decide your exit level (a stop-loss or a review point) before you enter a trade.
Conclusion
Unrealised gains and losses reflect the changes in the market value of investments that an investor continues to hold. They provide a useful snapshot of how a portfolio is performing at a particular point in time, but they do not represent a final profit or loss because the investment has not yet been sold. An unrealised gain can increase or decrease as market prices change, while an unrealised loss can potentially recover if the asset's value rises. Once you sell the investment, the unrealised gain or loss becomes a realised gain or loss, based on the difference between the purchase cost and the sale value, subject to applicable adjustments and charges.
