Definition

Appreciation is the increase in the asset value over a specific period of time. There are different reasons for an increase in the value of funds or investments such as demand, supply, interest rate, and inflation.

Explanation

The appreciation of an asset can be referred in any sort of assets such as real estate, bonds, stocks, and currency. This term can also be used in accounting when it is referred for an upward adjustment of the asset value held by the company in the accounting books.

For example, an investor bought 1 share of ABC Company for $5. If the value of share increased to $8, the investment has appreciated by $3. This appreciation can only be realized if stocks are sold out by the investor. If an investor does not sell the stock, this appreciation will be referred as paper profit.

The main objective of any investor against any investment is appreciation. It is the basic principle on which, every strategy on investment rests. However, if the investor wants to realize the benefit of the appreciation, the investment must be sold. Generally, it will be considered as taxable event, and taxes will be applicable on the gain occurring from the appreciation.