CAPITAL APPRECIATION

Saturday Brain Storming Thought (201) 16/12/2023

CAPITAL APPRECIATION

Capital appreciation is a rise in an investments market price

Capital Appreciation is the difference between purchase price and selling price

Key Takeaways of Capital Appreciation

1) it is rise in an investments market price

2) difference between purchase price and selling price of an investment

3) Investments designed for capital appreciation include real estate, mutual funds, ETFs ie exchange-traded funds, stocks and commodities

4) Capital Appreciation is not taxed untill an investment is sold, and the gain is realized

Capital Appreciation policy

It indicates the increase in an assets value and gives the equity holder an idea about it’s current profitability

Capital Appreciation of real estate in India

For 10 years – 4.80%
For 15 years – 6.50%
For 20 years – 9.00%

At 6%, the real estate return in one year has been less than 50% of what investors have earned from Indian equities

Capital Appreciation and Capital Gains

Capital Appreciation occurs when the value of an investment rise above the purchase price while the investor owns the asset

Capital Gains are the profit made once investment is sold

Factors of Capital Appreciation

1) strong economic growth

2) lower interest rates lead to an infusion of money in the market and create a possibility of appreciation

3) it may occur for assets such as company’s stock because it outperforms other competitors

4) in the real estate sector, capital appreciation may be a result of developments taking place in the nearby area

5) Population growth

6) favourable political and legal environment

7) high quality life ie good schools, healthcare facilities, cultural amenities

8) Rental Market demand

9) Affordability

10) Future growth potential

Negative Capital Appreciation

It’s entirely possible for an investment to produce negative Capital Appreciation if its market value declines ie Capital Loss

If it’s an investment you still own, it would be referred to as an unealized loss

Capital Appreciation and it’s account record

Capital Appreciation is not typically recorded on an income statement

Appreciation refers to an increase in the value of an asset over time, and it’s generally not considered a part of company’s operating performance

Capital, which refers to decrease in value of tangible asset over time, is not recorded in the income statement of a company

Understanding importance of Capital Appreciation

1) Capital Appreciation is a fundamental concept in the world of investing and finance

2) From an investors perspective, capital appreciation is a desirable outcome as it signifies a profitable investment

3) Capital Appreciation is not solely dependent on the original purchase price of an asset but also influenced by various factors such as market trends, industry performance, economic conditions

4) it is important to note that capital appreciation is a long-term game

5) when considering investment options, it is essential to compare different assets and their potential for capital appreciation

6) the best investment option for capital appreciation depends on an Individuals risk tolerance, investment goals and time horizon

7) understanding capital appreciation and it’s importance is paramount for investors seeking to maximize their wealth

Capital preservation and capital appreciation

Capital preservation refers to a conservative investment strategy that aims to protect assets in a portfolio through investments in stable, short-term vehicles

Capital appreciation refers to an increase in the market price of an investment product

Capital Appreciation fund

A capital appreciation fund is a specific fund that aims to increase the value of an asset through investments in high-value stocks within the stock market

Capital Appreciation funds asr also referred to as capital gain funds, and are a type of growth fund

Capital Appreciation and Buy and Hold investing

1) the power of compounding

2) avoiding market timing pitfalls

3) lower transaction costs

4) riding out market downturns

5) diversification of risk management