Capital Gain

If you buy shares for 4,000 and later sell them for 5,500, you have a capital gain of 1,500. If you sell them for less than you paid, you have a capital loss instead.

A capital gain is realised only when the asset is sold. Before that, an increase in value is an unrealised, or paper, gain, which can disappear if the price falls again.

Capital gains are one of the two main ways investors earn returns, the other being income such as dividends, interest or rent. Many growth companies pay little or no dividend, so most of their shareholders' returns come from capital gains.

Most countries tax capital gains, often under rules different from those for ordinary income. Gains on assets held for longer periods are sometimes taxed at lower rates, and some assets, such as a main home in certain countries, may be partly or fully exempt. Capital losses can often be used to reduce taxable gains. Because tax rules vary widely, investors usually check local rules before selling.