What is Percentage Gain and How Does it Work

Percentage gain indicates the return on investment, shown as a percentage of your initial investment. It shows how much your investment has increased in value, relative to its original cost. 

What is Percentage Gain? 

Percentage gain helps you understand how much your investment has increased in value, with respect to the original value.

For example, if you had invested ₹10,000 and it went up to ₹12,000, then the percentage gain would stand at 20%. 

Percentage gain is thus a simple way to compare performance across multiple investments, irrespective of their initial values. A positive percentage gain indicates that the investment is profitable and vice versa. As an investor, you can use this tool to evaluate the effectiveness of your investment strategy. 

Why Percentage Gain is Important

Here’s why percentage gain matters: 

• Percentage gain offers a comparable and standardised mechanism to assess investment profitability, irrespective of the initial investment amount. 
• Investors can understand how much an investment has increased in value, relative to the initial cost of the investment. 
• It thus helps investors make more informed decisions while comparing the performance of multiple investment choices and assets. 
• Percentage gain takes multiple factors into account, including brokerage charges, taxes, dividends, etc. This helps investors get a more comprehensive picture of the overall return on investment. 
• It is thus vital for investors, traders, and portfolio analysts due to the standardised and comparable method of analysing investment performance relative to other assets. 
• The size of the percentage loss/gain may indicate the volatility of a security, enabling investors to evaluate risks linked to any specific asset/investment. 
• Percentage gain may also be used to set goals in terms of investment returns and compare actual investment performance against benchmark indices. 

Percentage Gain Formula

To calculate the percentage gain,  

% Gain = [(Selling Price - Purchase Price) / Purchase Price] * 100

The selling price is the price at which any asset/security is sold, while the purchase price is the original cost of the same. The formula calculates the profit you earn on an investment as a percentage of the initial purchase price or investment. 

How to Calculate Percentage Gain – Step-by-Step Example

Here’s how you can calculate percentage gain on investments with an example: 

Let us assume that you invested ₹50,000 to buy a stock, which grew in value to ₹60,000. In this case, the percentage gain will be

((₹60,000 - ₹50,000) / ₹50,000) * 100 = 20%. 

In the same manner, if you had purchased a stock at ₹100 and then sold it at ₹150, then here’s how to calculate the percentage gain

((₹150 - ₹100) / ₹100 * 100) = 50%. 

Use of Percentage Gain in Investments

Percentage gain helps understand your investment performance and profitability when deploying your money in mutual funds, stocks, and real estate. For stocks and mutual funds, it is calculated by determining the difference between the selling and purchase price, then dividing this by the purchase price and multiplying by 100. You can understand how stocks and mutual funds perform and compare them with other investments. 

Some considerations include capital gains taxes, which may vary, depending on the investment type, holding period, and individual tax slab. Other costs, like commissions and trading fees should also be taken into account. Percentage gain can also be calculated for both realized gains (when you sell an investment) and unrealized gains (when you hold the investment without selling it yet). In real estate, you have to work out the difference between the sale price and the initial purchase price. Divide this by the purchase price and multiply by 100 to determine the percentage gain. Market conditions, property type, location, and market trends may influence percentage gain, along with the holding period, i.e., the time you hold an investment and how it impacts capital appreciation potential. 

CAGR vs Simple Percentage Gain

Another concept worth understanding is CAGR, or the compound annual growth rate of an investment, compared to simple percentage gain. The former is often regarded as a more effective method to compare investment performance over a longer duration. This is because it accounts for the impact of compounding. Simple percentage gain indicates the change between the final and initial value, without accounting for how the investment grew over a period of time. CAGR, on the other hand, depicts the average annual growth rate more realistically. 

Here are a few key points worth noting in this case: 

• Simple percentage gain calculates the total percentage decrease/increase in value over a specific duration. It does not account for the compounding effects of returns and fluctuations over more extended periods. 
• CAGR, alternatively, depicts average annual growth rate over a specific duration, assuming that all profits are reinvested and the investment is growing consistently every year. This makes comparing numerous investment strategies/assets more effective over longer timelines. 

Common Mistakes in Calculating Gains

Here are a few mistakes to avoid when calculating the percentage gain on your investment -

• Ignoring fees & taxes
  Most people calculate gains only on the difference between the selling and purchase prices. However, you should always account for brokerage fees, taxes, commissions, etc. They may lower your actual net gain considerably. 
• Misinterpreting gains vs. returns
  Gain is the difference between an asset’s selling and purchase prices. Yet, return covers its overall profitability, accounting for not just the gains but also the time value of money and any fees incurred. So, a 10% gain over a year is different from a 10% return if the investment holding period was five years. 
• Not adjusting for time
  When comparing percentage gains over varying time periods, it is vital to adjust for inflation and the time value of money. If not, then a 10% gain over a year may be comparable to the same gain over ten years, even though the purchasing power of money changes. Adjusting for time involves various metrics like CAGR or annualized ROI (return on investment). 

Percentage Gain vs. Percentage Return

Here is a snapshot of the key differences between percentage gain and percentage return. 

Online Tools to Calculate Percentage Gain

There are numerous online tools to help you calculate percentage gain, including the following: 

• You can use online calculators and spreadsheet functions in Google Sheets and Excel to calculate percentage gain. 
• Other resources include tools like ROI and CAGR calculators, along with stock return calculators across multiple platforms. 
• Many websites also offer several calculators you can use for this purpose. Groww also provides a range of calculators, including those for gratuity and stock average, which may help you calculate investment gains in varying contexts. 

These tools give you a more convenient way to calculate percentage gains by entering valid data and getting the results instantly. You can thus use percentage gain as a valuable tool to compare investment performance and make better investment decisions.