What Is Percentage Gain in IPO?
Percentage gain is a fundamental and critical metric for determining the performance of an investment. Comparing return on investment (ROI) in absolute terms may not be a good idea as invested money could vary. Hence, percentage gains are widely accepted when evaluating investments.
Data on the percentage returns on various investments, like percentage gain in IPO or stocks, can help you make future financial and investment decisions by calculating which asset is likely to benefit you and how much.
Furthermore, you can know the returns you can expect beforehand by analysing the percentage gains from various investing alternatives. Percentage gains must be in the toolbox of every investor.
The process of calculating percent gain is really simple. You can do it with a basic calculator and a no-brainer method that we'll share in this article.
Here we gave you a detailed description of the percentage gain, such as its importance, how it is calculated, and the additional factors that play a vital role in computing the percentage gain. This blog gives you everything that you need to know about percentage gain.
Importance of calculating percentage gains
Consider the following scenario. Assume you invested Rs.10,000 in Asset A and received an Rs.1,000 return on investment. On the other hand, you paid Rs.1,000 for Asset B and earned Rs.500 from it. At the onset, it appears that Asset A outperformed Asset B by making just double the returns. But is it really the case? Of course, no.
Because in the case of the first investment, you made a 10% ROI. Whereas if you look closely, Asset B gave a 50% return, thus, outperforming Asset A by a large margin.
Simply put, assessing your investment return in absolute terms, capital earned, does not provide a clear sense of how well it performed because invested capital is not the same every time, like in this case.
Calculating the asset percentage allows you to compare various assets, which assists in making wise financial decisions in the future.
What is the percentage gain?
Profit or gain is the difference between the selling and buying volumes, and percentage gain is a term that refers to the profit you make after selling an asset as a percentage of the buying volume.
If you bought a piece of land for Rs. 50 lakhs and sold it for Rs. 75 lakhs, you made an Rs.25 lakhs profit. When compared in terms of purchase volume, you made half of the purchase volume giving a 50% gain.
Calculating Percentage Gain
To calculate the percentage gain, you need two factors - selling price (value of the asset at the time of selling it) and buying price (value of the asset at the time of purchase).
You can calculate percentage gain in absolute terms by subtracting the purchase price from the selling price. It is vital to remember that if you sustained a loss in your investments, the purchase price would be greater than the selling price, resulting in a negative difference between the two. The only difference is that the percentage will be negative, and the calculated figure will be the loss per cent. The procedure will stay unchanged.
After calculating the profit or loss, divide the amount by the purchase price that will get you the times of loss or profit you made on your investment. If your profit was Rs.1,000 over an Rs.10,000 investment, you made 0.1 times the money you invested.
In most circumstances, the number is a decimal, making it difficult to analyse or compare. As for the final step, we multiply it by 100 to get a two-digit figure (it might be a one-digit number in rare circumstances). And get the percentage gain.
The formula for calculating percentage gain
Percentage Gain = Selling Price - Buying Price / Buying Price x 100
- The selling price is the rate at which the asset is sold.
- The buying price is the asset's price at the exact time of purchase.
- Dividing it by the purchase price calculates the times of profit made on the capital invested.
- Multiplying by 100 removes the decimal places and gives a figure which is easy to calculate.
Although this is the standard formula for calculating the percentage gain on profits, you can use the exact equation to get the loss percentage.
If the price falls from Rs.100 to Rs.90, the difference between the selling and buying prices becomes negative. Multiplying the decimal places by 100 will get you the exact loss percentage, in this case, of 10%.
To compute the percentage gain on unrealised gains (assets not yet sold), simply substitute the selling price with the current market price. This is referred to as the unrealised profit or loss percentage.
Assume you have a stock you purchased for Rs.100, and the current market price is Rs.110. The percentage gain is derived by simply substituting the selling price with the current market price, which yields a 10% unrealised profit.
Factors to be considered while calculating Percentage Gain
Aside from the invested capital and the return, a few other factors might affect the percentage gain. Though they may appear little at first, they make a difference and must thus be incorporated into the formula.
For example, the investor has to pay brokerage charges, and the investor also receives dividends.
Dividends, simply put, is the amount of money the company rewards its investors for holding its stock. The board of the company decides the dividend yield, which is usually between 2% to 5% value of the stock. Dividends are paid on a per-share basis.
If you bought a stock for Rs.100 and sold it for Rs.120, you made an Rs.20 profit or a 20% return on investment. Additionally, if the company paid a 5% dividend on its stock, it must be factored into the equation. As a result, the estimate will look like this:
[ Rs.120 selling price - Rs.100 capital invested) + Rs.5 dividend] / 100 = 0.25 x 100 = 25% RoI
You require an authorised broker to complete the deal when investing in assets like stocks and bonds. Additionally, you have to pay a brokerage charge for each transaction, whether you buy or sell. The brokerage charges typically range from 0.25 to 0.75% of the whole trading volume. However, discount brokers like Upstox charge a flat brokerage fee irrespective of the trade volume.
Coming to the analogy used before, let's say you had to pay a rupee in brokerage fees. The equation will be altered in this way.
[ Rs.120 selling price - Rs.100 capital invested) - Rs.1 brokerage fees] / 100 = 0.25 x 100 = 19% Percentage Gain
Capital Gain Tax
When you sell your assets, you must pay capital gains, which vary depending on how long you have owned the asset.
- If you sell your asset within twelve months of purchasing it, you need to pay a short-term capital gain tax higher than a long-term capital gain tax.
- If you retain your assets for longer than a year, you will be exempted from the short-term capital gains tax. Long-term capital gains are taxed in that case, although at a lower percentage rate.
Understanding percentage gain with Examples
To understand percentage gain at its best, let us look at how you can calculate it with different assets.
You acquired 100 shares of ABC Corporation at Rs.10 per share and sold them at Rs.11. The capital invested is Rs.1000 (multiply the market price by the number of shares purchased), and the sale volume is Rs.1100.
Gain in Percentage = (1100 - 1000) / 1000] x 100 = 10%
The percentage gain will not equal the net profit because of dividends, brokerage costs, and capital gains tax.
The percentage gain will not be the net profit, with changes caused due to dividends brokerage charges and capital gain tax.
Suppose you bought an Rs.10,000 slot for 1,000 shares of ABC Corporation at Rs.10 per share and sold them for Rs.12 per share when they were listed on the stock exchange. Given the information, you gained Rs.2000 on an Rs.10,000 investment for a 20% gain.
[(Rs.12,000 - Rs.10,000) / Rs.2,000] x 100 = 20%
Consider the following scenario to see how much you can profit by investing in an index fund such as the Nifty or Sensex.
Assume the index fund opened at 15,000 and closed the month at 1600.
[(16000-15000) / 15000] x100 = 6.6% percentage gain.
- Percentage Gain is an essential tool used to evaluate investments.
- To calculate the percentage gain, divide the profit or loss by the purchase volume and multiply the number by 100
- Percentage gain might vary with factors like dividends, brokerage charges, and capital gain tax levied after selling the assets.
- With data on percentage gains, you can make future investment decisions by knowing which assets are likely to give the highest returns.
Percentage Gain is one tool that every investor should be aware of and learn to utilise. It's crucial in analysing investments and should be evaluated before investing by looking at the predicted returns. This article has covered all you need to know about percentage gain and various examples to help you understand it better. Use the formula and guidelines to improve your investing. We appreciate you reading till the end.