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Definition: Investment Gain
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There are two ways to calculate investment gain, both of which give the same result.
Method 1: Start with the ending value and subtract the starting value and flows.
Investment Gain = End Value – Start Value – Inflows – Outflows – External Fee Payments
Method 2: Sum up the total of the capital appreciation, income and expenses, and change in accrued for that security.
Investment Gain = Capital Appreciation + Income and Expenses + Change in Accrued
An account begins the period holding with 10 shares of security XYZ priced at $25, worth $250. The client deposits $90 and buys 3 more shares of XYZ for $30 each. During the period, XYZ pays out a dividend of $10. At the end of the period, security XYZ is worth $30 per share.
Method 1 Calculation:
End Value = 13 shares of XYZ × $30/share + $10 dividend = $400
Start Value = 10 shares of XYZ × $25/share = $250
Inflow = $90 cash deposit
Outflow = $0
Investment Gain = $400 (End Value) - $250 (Start Value) - $90 (Inflows) - $0 (Outflows) = $60
Method 2 Calculation:
Capital Appreciation = 10 shares of XYZ × $5/share increase + 3 shares × $0/share increase = $50
Income and Expenses = $10 dividend
Change in Accrued = $0
Investment Gain = $50 (Capital Appreciation) + $10 (Income and Expenses) + $0 (Change in Accrued) = $60