What is Unrealized Gain/Loss?

An Unrealized Gain or Loss is a "paper" profit or loss on an asset that an investor holds but has not yet sold. The gain or loss becomes "realized" only when the asset is sold. For accounting purposes, certain investments must be marked-to-market, meaning their value is updated on the financial statements even if they haven't been sold, creating unrealized gains or losses.

For Startups: This concept is relevant for startups that hold investments in other companies or in marketable securities. These changes in value are often recorded in a section of the balance sheet called "Other Comprehensive Income."

Example: A company buys shares in another company for ₹1 Lakh. At the end of the year, the shares are worth ₹1.5 Lakhs. The company has an unrealized gain of ₹50,000.