Why Am I Making Loss Although I Sold At Profit?

[anond]

Hi,

I am new at investing so apologies if I am missing anything elementary here. Mid of last month, I purchased 8 shares of Tata Motors DVR (in several installments of varying prices between 439 and 456) at an average price of 449. Now when the prices started rising yesterday, I sold 4 shares at a price of 456.60. Now, logically thinking, I think I made a profit of around Rs. (7.60*4). However, my demat account shows a loss.

Is there anything I am missing here? I guess the transaction charges are also very low at around 55 paisa for 100 rupees of trasaction, so that alone is not going to have affected the profitability of the transaction.

 

[TT2011]

Almost all such software work on FIFO (First In First Out) method. So if you purchased the first 4 shares at Rs. 456 and other 4 shares at Rs. 439, then it would consider that the 4 shares you sold at Rs. 456.60 has purchase value of Rs. 456. Hence LOSS after considering brokerage and taxes.

HTH.

 

[anond]

Thanks a lot TT2011. It definitely helped. I am now looking into the P/L section and there are a few other things that makes it confusing a bit.

Here is one line of P/L activity for instance:

The first few columns are the Sale and the last few are Purchase. I sold 2 shares at 456.60 which makes the total money spent 913.2 with a rupee or two in transaction charge. But it shows value as 899.28. Similarly, 449*2 is 898. But it shows the value at 922.88. How come this massive disparity?

 

[TT2011]

Formula for Sell
--------------------
Number of Shares x Price per Share = Total Sell Price - Commission and Taxes = Amount payable to YOU (You will receive this amount).

2 x 456.60 = 913.20 - 13.92 = 899.28

Formula for Purchase
------------------------
Number of Shares x Price per Share = Total Purchase Price + Commission and Taxes = Amount payable to THEM (You have to pay this amount).

2 x 449.00 = 898.00 + 24.88 = 922.88


Formula for Profit or Loss
-----------------------------

Amount received by you after selling shares - Amount paid by you after buying shares = Profit (+) / Loss (-)

899.28 - 922.88 = -23.60

HTH

 

[anond]

Thanks TT2011..I had not accounted for taxes in the calculations. I just have a couple of questions that I hope you could help

1. Why are the taxes (considering commissions are same on buy/sell) on purchasing higher than while selling them?

2. Why are we made to pay taxes on purchase since we normally only pay taxes for the income earned (that is when selling shares)?

 

[TT2011]

I don't know the answers, sorry.

1. Check your contract note for details about commission and taxes. For more information contact your broker.

2. "we normally only pay taxes for the income earned" <= This is a wrong statement. Normally we pay taxes almost on every financial transaction. You should ask government why they are charging so much taxes and doing nothing to help us.

 

[arvindravikumar]

Anond,

What is the brokerage percentage? Many brokers charge a flat rate if transaction value is less than what is stipulated by them.

Looking at your transactions I think that might be the problem.

Transaction charges are fixed
0.0035% for NSE (on trade value)
0.0034% for BSE (on trade value)

Stamp duty is
0.01% for delivery trades


Service Tax is 10.3% of brokerage

STT is 0.125% of total transaction value

 

[arvindravikumar]

Thanks TT2011..I had not accounted for taxes in the calculations. I just have a couple of questions that I hope you could help

2. Why are we made to pay taxes on purchase since we normally only pay taxes for the income earned (that is when selling shares)?

Anond, Why do we pay sales tax when we buy lets say tv or AC? we are not incurring income there too!

Jokes apart, brokerage is a service so it attracts service tax.

STT+> http://www.onemint.com/2008/12/05/what-is-securities-transaction-tax/

 

[arvindravikumar]

Another word of advice,

You said you purchased 8 shares in many instalments. Though it is good to begin with small steps, try to avoid transactions of very low volume. You will find it harder to beat the brokerage and then see profit.

I used to do the same when I began trading. but realised it was giving me losses. Concentrate on slightly bigger volumes(like Rs. 4000 or 5000). instead of buying one or two, track any stock for a buy point and invest in a little higher quantity. this will make things more profitable in the long run.

Cheers

 

[respectinvestor]

Anond,

What is the brokerage percentage? Many brokers charge a flat rate if transaction value is less than what is stipulated by them.

Looking at your transactions I think that might be the problem.

Transaction charges are fixed
0.0035% for NSE (on trade value)
0.0034% for BSE (on trade value)

Stamp duty is
0.01% for delivery trades


Service Tax is 10.3% of brokerage

STT is 0.125% of total transaction value

What if a broker is charging (intra-day cash)
Transaction charges...(.01% instead of .0035%)
Stamp duty.......(.01% instead of .002%)

I suppose these are statutory charges and not subject to interpretation of individual brokers...shall I write to them for refund...and in case they do not refund excess charged would it be appropriate if I approach NSE/SEBI?
ONLY point is otherwise my broker is the best...and in fact ideally I would like to continue with them inspite of these charges...because I do not think a person ever made money just because his brokerage was low....otherwise my brokerage is extremely satisfied customer of them and won't like to put them in a spot...even though they may be wrong in charges