Tuesday, 23 April 2013

BROKERAGE AND TAX

If combine this with the fact that inflation reduces the value of money over time, you are just loosing money if you do not invest wisely without understanding brokerage and inflation. A stockbroker earns a commission on whatever transaction you make. Suppose you make a transaction of Rs.2000, and the stockbroker charges you a 3% commission, then you have to pay the stockbroker Rs.60 for the transaction. So your total investment in the transaction in not Rs.2000. The total investment in the transaction is Rs.2060/-Brokers make money on whatever transaction you make. Whether you buy or sell, brokers will make money. Because brokers basically make money on transactions.....
Because of this, brokers tend to encourage you to trade. They don’t really care about whether you make a profit or loss. They just care about whether you are trading. The more money you are using for trading, the more they will make. Because of this, it would be wise to not blindly follow your brokers advise. The broker will give you hot tips  not because they are looking out for you and your profit, but because they are thinking about their own personal profit! 
How much % tax you have to pay, depends on which "tax bracket" you fall in.
Just to give you an idea. If I make Rs.100 though a transaction in the stock market, since I fall in the 33% tax bracket. It have to pay Rs.33 of that to the government!! Now combine this short term capital gain tax with brokerage and inflation! Think about it for some time. You will almost make nothing on a small profit gains! If you want to make money out of the stock market, you must make large profit gains. 
Conclusion: As a general rule, just for the sake of simplicity, your investments must grow at a minimum rate of 15% per year to stay ahead of inflation, tax and brokerage!! Remember this when making all your investments. 

5 comments:

  1. Great post. I also find hummus hot-or-miss, so now I just don’t bring it. I add it to my daily reading list

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  2. You are such a market genius!good articles posted.keep it up

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  3. So incredibly helpful! Leaving for a trade accordingly on your strategies.

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  4. PERFECT timing on this post! I’m trading according to you.

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  5. Thanks for the ideas..always have a tough time trying trade in option but things are much simple for me

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