Realized Gain

An investment can increase in value on paper, but the profit becomes real only when the investment is sold. At that point, the gain is realized.

For example, an investor buys shares for 3,000. A year later, they are worth 4,000. That 1,000 increase is unrealized while the investor still holds the shares. If the investor sells them for 4,000, the 1,000 becomes a realized gain.

Realized gains matter mainly for tax. In most countries, capital gains tax is charged only on realized gains, not on increases in value that have not yet been sold. This means investors can often influence when they pay tax by choosing when to sell.

Realized gains can be offset by realized losses. If an investor realizes a gain of 1,000 on one investment and a loss of 400 on another in the same tax year, the net taxable gain may be 600, depending on local rules.

For funds, realized gains on investments sold during the year are often distributed to investors, who may then owe tax on them even if they did not sell their fund units.