Skip to main content

Long Term Capital Gains Tax & Profit Booking

Image
By

4.2.2018

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." – Warren Buffett
Market is abuzz with noise on long term capital gains tax and its impact on your investments. All those people who were ranting against exempting agriculture income till now, have turned their rhetoric against levy of this LTCG tax on equity. While we believe government is accumulating feedback and may bring in some respite in form of allowing indexation benefit on these, this tax is going to stay and we must align our investment strategy to this reality.

First thing we must understand that this tax will be applicable only on the capital appreciation over the values as on 31st January 2018. Also in case your cost of acquisition of a share or mutual fund is higher than the value as on 31st January then higher cost will be considered as your cost of acquisition. So you don’t have to worry about any gain you have made till now on your equity investments including equity mutual funds.

The Friday Bash: Fall of over 2.5% in Nifty and Sensex on Friday is being attributed to introduction of LTCG tax. But a little scrutiny will tell you that it was not only Indian markets even Dow Jones Industrial Average, an index for American stock markets also fell by almost the same margins on the same day. Further scrutiny will tell you foreign investors invested almost twice the amount that Indian investors sold on Friday. Clearly the foreign investors are still finding a lot of juice in Indian stock markets despite this LTCG tax and encashed the opportunity to enter the market.

What looks like to happen: We at InvestmentMitra feel Friday’s fall should not continue for long and should not culminate into the kind of correction that everyone is talking about and even we were also waiting for sometime. For the big investors including corporate who are likely to make handsome money from stock markets over their portfolio values of 31st January between February and March 2018, will be booking their long term profits before the end of the current financial year to save on the taxes that will be leviable from 1st April onwards. Around that time we might see more price correction taking place, higher in magnitude than the current one.

Strategy going further: We advise our investors to wait patiently and not to panic till mid of the March. In case your portfolio has gained substantially from 31st January’s values and is long term then you can book profits, otherwise there is no need to even look at the valuations as this will be a temporary phenomenon. Also preserve your cash and use it to benefit from the sale that market may offer. Do look for an opportunity to book long term capital loss in April to offset your future long term capital gains.

Sit down with your investment advisor at the earliest to identify the opportunities in your portfolio and pen down the action points to be taken in next 2-3 months.

For any further query or discussions or for an alternate opinion you may contact us at InvestmentMitra by replying to this message or may email to info@investmentmitra.com.

Happy investing!

Comments

Post a Comment

Popular posts from this blog

This Republic Day Write Your Own Financial Constitution

By
“Constitution is not mere a lawyer’s document, it is a vehicle of life and its spirit is always the spirit of Age” – BR Ambedkar A constitution primarily is a document that details the rights, obligations, privileges, duties and responsibilities of the people living within the corridors of, and leading that country. It details the rule of governance. Without a constitution it will be difficult to live like a civilised society. We would be living like in stone-age where “Might was Right” and jungle raj prevailed all over. Like a country, each individual should also have his or his family’s own financial constitution detailing various financial objectives and the process to achieve those financial objectives, rules that will govern the way its finances will be managed etc. This applies to all individuals without exception and is more popularly known as “Financial Plan”. Like a constitution your financial plan should have a Preamble and different schedules. Preamble -
Post a Comment
Read more

Time or Timing – What is more important with Sensex @ 64K

By
  The Stock Market is the device to transfer wealth from the IMPATIENT to the PATIENT. After swinging in a range for almost one and half years, markets breached their previous peaks and are scaling new one now. Markets have risen by almost over 14% in last three months. Major reason for this sudden rise is the return of FIIs to the Indian stock markets following the fact that India is the fastest growing economy and growing over 6% despite covid, global economic slowdown and geo-political tensions. We invest for long term and everyone knows in the long run markets will go up irrespective of intermittent shocks like scams, dot-com bubble, Lehman crisis, covid or banking troubles in USA etc. Following picture depict the journey of Sensex over 40 years since its inception.   Source; www.thenwsmen.co.in The unfortunate part is we are more concerned about the short term movements of the markets. Every time there is sudden rise or fall in them market we are gripped more by fear and l
Post a Comment
Read more

On Cross Roads

By
“We cannot truly plan, because we do not understand the future- but this is not necessarily a bad news. We could plan while bearing in mind such limitations. It just take guts.”- Taleb:   Propounder of The Black Swan theory. Pessimism that set in March, still persists in our minds. In fact it has deepened with growing number of Covid cases being reported. The largest question ruling our minds today is - Shall we ever be able to overcome it…………..     and if yes by when and how? Have we ever wondered how have the Indian culture survived for so many thousands of years, how come so many Indians who were transported as labourers to many African and European countries centuries ago are now ruling the roost or how come most of the top 20 firms in the world have Indian heading them and so on……….. The only reason to above and many such questions is our “ Ability to Adapt ”. We are fast learner and very quickly adapt to new situation. Indians enjoys six different weather in a yea
3 comments
Read more

Markets Tumbling, Recovering – What to do??

By
Markets Tumbling, Recovering – What to do?? "The best time to plant a tree was 20 years ago. The second best time is now." - Chinese proverb. In times like present most people flock towards safety. Most do it because they don’t know how long this doomsday atmosphere will last, some even feeling like there will be No Tomorrow. But hunger for good returns on our investment never ceases. Kin Hubbard satires, "The safest way to double your money is to fold it over and put it in your pocket." On investment and earning good money from them, Warren Buffet – the legendary investor says, "If I buy a farm, I don't know whether there's going to be drought next year, but I know that there are not going to be 20 straight years of drought, and I know there's not going to be 20 straight years of great rainfall." It is a proven fact that no matter what, in long term best returns come from stock markets only. And as Seth Klarman says, “The stock mar
1 comment
Read more

Have You Missed Boarding the Bus

By
  "The market does not trade upon what everybody knows, but upon what those with the best information can foresee" – William Hamilton Russia-Ukraine conflict had clouded the stock markets worldwide giving speculations to the talks like possibilities of third world war, Russia heading for deep financial crisis, energy crisis looming large over Europe etc. With Russia-Ukraine conflict seems getting settled and much to the pleasure of Russia – the Super Power, this has now become a non-player for the markets until some significant deviation happens from the present stance taken by all major countries of the world. Present is the world of instant. We want everything instant and so are our reactions. In the age of internetted social life, dissemination of information is highly fluid. And over 99% of these netizens have mastered the art of forwarding such information without verifying if it’s a news, noise or manipulated agenda of some interested parties.   Most economies in
1 comment
Read more