Unrealized gains and losses are one of the most important ideas in personal finance and stock market basics. Many Indian beginners see investment value move up and down in their Demat account and feel confused about whether they have actually earned or lost money.
This change in value before selling is called an unrealized gain or unrealized loss.
Understanding this concept helps investors build confidence while learning how the Indian stock market works.
In this guide, you will learn the difference between realized and unrealized amounts, how to calculate them, and what their income tax impact is in India.
What Is an Unrealized Gain?
An unrealized gain is the increase in the current value of an asset that you still hold in your portfolio. The gain exists only on your ledger or Demat statement because the investment has not yet been sold.
Market prices in India change every second during trading hours, so the unrealized figure also keeps changing.
This means that you have not received any cash in your bank account. You simply own something that is now worth more than what you paid for it.
For example, if an Indian investor bought shares at ₹100 each and today the price is ₹140, the investor has an unrealized gain of ₹40 per share.
This matters for beginners because many people treat this as confirmed profit and start spending or borrowing against it. In reality, the price can fall again tomorrow. Knowing that unrealized gains are temporary protects new investors from emotional decisions in the Indian stock market.
What Is an Unrealized Loss?
An unrealized loss is the decrease in value of an investment that you continue to hold. It happens when the current price drops below the purchase price.
Like gains, these losses remain “paper” entries until you sell. The amount can reduce or even turn into a gain if markets recover.
The idea completely refers to notional reduction, not actual outflow.
Suppose you purchased a stock at ₹200 and it slips to ₹160 in the Indian market. You face an unrealized loss of ₹40 per share. But if you do not sell, you have not locked that loss.
This matters because beginners often panic and exit quality stocks at the worst time.
Understanding how unrealized losses work helps investors focus on learning stock market basics instead of reacting to daily volatility. The example above shows why patience is important in India’s fluctuating financial markets.
Unrealized vs Realized – The Core Difference
The difference between unrealized gains and realized gains lies in the act of selling. A gain or loss becomes realized only after the asset is sold for cash. Until then, the performance is still open.
What this point means is that taxation in India follows realized amounts, not unrealized ones. If purchase price equals sale price, there is no gain and no loss.
For instance, selling a share bought at ₹300 for ₹320 creates a realized gain of ₹20.
This matters for beginners learning personal finance because income tax liability arises only after realization.
Many new investors think they must pay tax on value shown in the Trading and Demat App.
The example clarifies that in India, income tax and capital gains rules apply only in the year of sale.
How to Calculate Unrealized Amounts
Formula:
Unrealized Gain or Loss per share = Current Market Price – Purchase Price
Total Unrealized Amount = Unrealized per share × Number of shares
Each variable refers to prices quoted on Indian exchanges such as NSE or BSE.
The formula is simple and works for stocks, mutual funds, gold ETFs, and other Indian investments.
This matters because beginners often rely on apps without knowing the math behind figures.
If you bought 100 shares at ₹50 and today price is ₹38, total unrealized loss = (₹38 – ₹50) × 100 = –₹1,200.
Brokerage platforms in India display this unrealized gain and losses automatically, but understanding formulas builds trust while learning stock market basics.
Why Markets Affect Unrealized Values Every Day
Financial markets in India can change any time exchanges are open. Even if the investor does nothing, unrealized amounts rise or fall with demand, news, GST policy changes, or company performance. These fluctuations are natural in stock market basics.
This matters for beginners because emotional stress is the main reason people fail in personal finance.
Unrealized values do not mean immediate money. They only show opportunity at that moment.
For example, a stock purchased at ₹80 may show ₹110 in the morning and ₹95 by evening in India. The investor must understand that the unrealized gain kept changing through the day.
Paper Profit Is Also Called Paper Loss
In India’s finance language, unrealized gains are also known as paper profits and unrealized losses are called paper losses.
These names exist because the amount appears on the investor ledger and not as cash.
Income Tax Impact in India
Unrealized gains are not taxed under Indian income tax law.
In India you report only realized capital gains and losses to the Income Tax Department. You must report capital gain or capital loss in the year the asset was sold for cash.
Common Mistakes
A very common mistake in India is assuming that unrealized gain is salary-like income.
Another error is panic selling when unrealized loss appears in red color on apps.
The correct understanding is that only realized amounts create confirmed money and income tax impact in India.
Conclusion
You now understand what unrealized gains and losses mean in India. These are paper changes in ₹ value before selling, while realized amounts are actual cash in ₹.
The concept builds confidence for beginners learning personal finance and stock market basics. Always track your Demat statement carefully and avoid emotional decisions in India.
