DEFINITION of 'Capital Gains Exposure - CGE'

Capital gains exposure is an assessment of the extent to which a stock fund or other similar investment fund's assets have appreciated or depreciated. Capital gains exposure may have tax implications for investors.

BREAKING DOWN 'Capital Gains Exposure - CGE'

Positive capital gains exposure would mean that the assets in the fund have appreciated and that shareholders will have to pay taxes on any realized gains on the appreciated assets. Negative exposure means that the fund has a loss carryforward that can cushion some of the capital gains.

Calculated as:

Capital Gains Exposure (CGE)

For example, a stock fund with a million shares currently has assets that are worth a total of $100 million. Six months ago, the assets were only worth $50 million, and the fund still has $10 million worth of losses that can be carried forward. In this case, the capital gains exposure is 40% or, in other words, if the fund manager realizes the gains, each investor will have to pay taxes on a $40 capital gain.

Capital Gain

Capital gain is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.

While capital gains are generally associated with stocks and funds due to their inherent price volatility, a capital gain can occur on any security that is sold for a price higher than the purchase price that was paid for it. Realized capital gains and losses occur when an asset is sold, which triggers a taxable event. Unrealized gains and losses, sometimes referred to as paper gains and losses, reflect an increase or decrease in an investment's value but have not yet triggered a taxable event.

A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price.

Capital Gains Tax

A capital gains tax is a tax on the profit realized on the sale of a non-inventory asset that was greater than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals, and property. Not all countries implement a capital gains tax, and most have different rates of taxation for individuals and corporations.

Taxes are charged by the state over the transactions, dividends and capital gains on the stock market. However, these fiscal obligations may vary from jurisdiction to jurisdiction.

In the United States, with certain exceptions, individuals and corporations pay income tax on the net total of all their capital gains. Short-term capital gains are taxed at a higher rate: the ordinary income tax rate. The tax rate for individuals on "long-term capital gains," which are gains on assets that have been held for more than one year before being sold, is lower than the ordinary income tax rate, and in some tax brackets, there is no tax due on such gains.

RELATED TERMS
  1. Capital Gain

    Capital gain is an increase in a capital asset's value that is ...
  2. Taxable Gain

    Taxable gain refers to any profit earned on a sale of an asset ...
  3. Tax Loss Carryforward

    A tax loss carryforward is an opportunity for a taxpayer to carry ...
  4. Tax Rate

    A tax rate is the percentage at which an individual or corporation ...
  5. Schedule D

    Schedule D is a tax form attached to Form 1040 that reports the ...
  6. Crystallization

    Crystallization is the act of selling and buying stocks almost ...
Related Articles
  1. Taxes

    Capital Gains Tax 101

    Find out what a capital gain is, how it is calculated, how taxes are applied to your investment returns and how you can reduce your capital gain tax burden.
  2. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
  3. Investing

    Why Some Investors Have to Pay Taxes on a Loss

    Here's why some investors need to pay capital gains taxes even if they haven't sold any funds or made any portfolio changes—and how to combat it.
  4. Taxes

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
  5. Investing

    Capital Gains Strategies for High Returns

    Investors who have made significant gains face potential tax liabilities when they sell. Here are some strategies to reduce taxes.
  6. Financial Advisor

    How to Help Clients Harvest Tax Losses by Year End

    Here's how to help clients employ tax-loss harvesting to reduce their taxes before year end.
  7. Financial Advisor

    Top Tips for Deducting Stock Losses

    Investors who know the rules can turn their losing picks into tax savings. Here's how to deduct your stock losses.
  8. Investing

    Keep Your Investing Tax-Efficient With These Tips

    It is prudent to take tax considerations into account when constructing taxable investment portfolios.
  9. Investing

    How Mutual Funds Are Taxed in the U.S.

    A look at how mutual funds are taxed and how investors can be more tax efficient.
  10. Investing

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center