Unrealised P&L
Paper gain/loss on positions you still hold. Marked to current price. Becomes Realised P&L only when you sell. Not yet taxable.
Unrealised profit and loss, often referred to as "paper profit and loss," is a term you might encounter on your investment dashboard. It refers to the gains or losses on investments you currently own but have not yet sold. Imagine you bought shares of a Nigerian company listed on the Nigerian Exchange (NGX) a few months ago. If the share price has increased since then, you're sitting on an unrealised profit. Conversely, if the share price has fallen, you have an unrealised loss. These gains or losses are calculated based on the current market price of the investment, but since you haven't sold, they are not yet realised.
In Nigeria, the Central Bank of Nigeria (CBN) sets the Monetary Policy Rate (MPR) which is currently around 27.50%. This rate can influence the value of your investments. For example, if you hold treasury bills (T-bills) and the MPR goes up, the interest rate on your T-bills might increase, affecting their market value. These changes will be reflected in your unrealised profit or loss. It’s important to note that unrealised profit or loss is not yet taxable. In Nigeria, dividends are subject to a 10% withholding tax (WHT), and capital gains are taxed at 10% (CGT). However, these taxes only apply when you actually sell your investment and realise your profit.
Let's put this into a more relatable context. Suppose you bought 1,000 shares of a company at ₦10 per share. If the price rises to ₦12 per share, your unrealised profit is ₦2,000 (1,000 shares * ₦2 gain per share). However, if you decide to hold onto the shares, you won't pay any tax on this profit until you sell. The same goes for losses; if the share price drops to ₦8, your unrealised loss is ₦2,000 (1,000 shares * ₦2 loss per share), but you won't incur any tax until you decide to sell.
Understanding unrealised profit and loss is crucial for managing your investments effectively. It helps you gauge the performance of your portfolio without actually selling your holdings, which can be particularly useful in a volatile market like Nigeria's. This knowledge allows you to make informed decisions about when to hold or sell your investments.
Why it matters: Knowing whether you have an unrealised profit or loss helps you keep track of your investment performance without actually selling your assets. This can be especially useful in Nigeria, where market conditions can be unpredictable. By monitoring your unrealised P&L, you can make more informed decisions about your investment strategy, ensuring you’re prepared for any market changes.