Tag - securities transaction tax

March 2010

Understand charges other than Brokerage when Buying and Selling Shares

Understand charges ,other than Brokerage ,when Buying and Selling Shares,STT, Service Tax, Education Cess, Exchange Levy, Stamp Duty, DIS Charges, Interest ChargesMost of you must have bought and sold shares through intermediaries. Most of you are aware of the brokerage costs. However there are various other charges levied by Exchange. These charges are on top of brokerage costs and they kick in whenever you buy or sell shares or trade in Futures and options.

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It makes sense to be aware of these charges, understand the calculation of these charges and how it impacts the cost of purchase.

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Whenever you buy or sell shares, make sure you check the contract note. The contract note contains details of the purchase or sell you have made with the intermediary. Ensure that the quantities and the shares are correctly mentioned. You will see the following charges in addition to Brokerage charges – Securities Transaction Tax (STT), Stamp Duty, Exchange Levy, Service Tax, Education Cess etc.

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The below mentioned table provides a quick overview of the various charges involved when buying or selling shares or trading in Futures and options.


Cash Market Delivery

Cash Market Intra-day

Derivatives Futures

Derivatives Options

Brokerage *

* Approx costs taken – pls check with your intermediary.

.50%

.05%

.05%

Rs 100 per lot

Service Tax on Brokerage

10% of Brokerage

Education Cess on Service Tax

2% of Service Tax + Secondary and Higher Education Cess 1% of Service Tax

Securities Transactions Tax (STT)

(Charged on Volume)

0.125% of Volume

0.025% of Volume on
SELL transactions

0.017% of Volume on
SELL transactions

0.017% for Option Premium * Qty on SELL transactions and 0.125% of Settlement Value where Option is exercised

Exchange Levy

(Charged on Volume)

0.0034% of Volume in BSE and 0.0035% of Volume in NSE

0.0034% of Volume in BSE and 0.0035% of Volume in NSE

0.002% of Volume

0.05% of Premium * Qty

Stamp Duty

(Charged on Volume)

0.01% of Volume

0.002%of Volume

0.002% of Volume and closeout

0.002% of Premium and Notional value for Exercise / Assignment

Miscellaneous Charges (* Assumptions) — can Vary.

Pls check with your Intermediary

Physical Contract Note charges

Rs 20 /- per contract note. In case of digital contract notes , charges still apply, albeit they are less say Rs 10/- per contract note.

Delivery Instruction Slip Charges

Rs 10/- per transaction

Cheque Bouncing charges/ Cancellation Charges

Rs 300/-

Interest on Delayed Payments

20% pa

There are some other charges involved like SMS alert facility monthly charges, Processing Charges, Minimum Brokerage per day etc. which you should be aware of.

Here is a quick example to understand the impact of other charges.

Let us take the case of Cash Market Delivery Shares purchase of Reliance shares

BUY 100 QTY RELIANCE SHARES @ 1000/- per share.

Volume = Qty * Price = Rs 1,00,000/-

Brokerage = (Using the above assumption of .50%)

= .50% of Volume = =(.05/100) * 100000

= Rs 500/-

_______________________Other Charges__________________


Service Tax = 10% of Brokerage = Rs 50/-

Education Cess = (2 % + 1 %) of Service Tax = 3 % of Rs 50/- = Rs 1.5/-

STT = .125% of Volume = Rs 125/-

Stamp Duty = .01% on Volume = Rs 10/-

Exchange Levy = .0035% of Volume (NSE) = Rs 3.5/-


Total Cost= Rs 690.5/- This is Rs 190.5/- more than only the brokerage cost.


The Securities Transaction Tax (STT) is a second biggest cost after the brokerage. STT was introduced by Mr P Chidambaram in the union budget of 2004-2005. Securities Transaction Tax is applicable on purchase or sale of equity shares, derivatives, equity-oriented funds and equity-oriented mutual funds.

It makes sense to be aware of these costs and use them in your calculations.

You can find more information on some of the terminologies related to Demat at  http://www.sebi.gov.in/faq/faqdemat.html

Costly Investment Mistakes to avoid at all Cost – Final Part – IV

Costly Investment mistakes Part 4, Investment Planning, Financial Advise, Stocks, Mutual Funds Investing, Life Planning, Goal Oriented Planning.

In the process of investing, one often makes mistakes.

Here are some of the most common investing mistakes which investors generally make and some of which even I had made in the earlier part of my investment years

Of course, learning from the mistakes, continually, the investing experience has truly been rewarding experience.

You can also cultivate good habits of investing by avoiding the following mistakes.

This series is in continuation to the earlier 3 posts which contains the first 7 common mistakes committed by investors. You can read posts here. (Part I, Part II and Part III)

This post (Part IV) will throw light on the following common 3 mistakes generally committed by investors:

#8. No proper grip on Diversification – If Too little is bad , Too much is no good either

Don’t put your all your eggs in one basket.

There is wisdom is this old saying. Diversification is essentially spreading out investments across different types of asset classes.  (Different kinds of asset classes like Equities, Debt, Gold, and Real Estate etc.)

Even within one asset class – say, equities / mutual funds, portfolio has to be diversified eg: having stocks spread across sectors like Power, Banking, Oil, Telecom sectors, FMCG etc.

Example of over diversification: Having 20 different mutual funds, 50 different stocks and portfolio size is say 5lacs.

Example of under diversification: Having 2 stocks each of 2.5Lacs and both are from Oil sector.

Now, Great investors like Buffet and Munger of Berkshire Hathway, do engage serious money in specific stocks. However, you need to understand that they do intensive research, have access to top management of companies and are into serious investing business.

But for people , looking for investment avenues with the objective – that over a period of time it beats inflation, generates sufficient retirement corpus, provides emotional security, beats the debt instruments by couple of percentage points annualized, which does not provide sleepless nights —- for all such investors,having an optimal diversified portfolio is the way to go.


#9. Not paying attention to Fees, Expenses, Commissions, Taxes involved

If you think education is expensive, try ignorance.

Do you know that themajor earnings source of Mutual fund Providers(Players) are not via entry load (which is now banned by SEBI) , or via exit load (Incidentally these costs are the most advertised). They make their money thru thejuicy AMC charges, which each mutual fund charges you annually. So if you own around 10lacs of mutual fund. You are paying around 25,000/- Rs annually just for holding the units(Assuming highest expense ratios of 2.5% pa). The expenses get factored into the NAV (Net Asset Value) of the Mutual Fund Units. It is intangible and most investors do not feel the pain.

Do you know that over a period of 10 years, or 15 years what kind of negative impact this annual expense ratio business can have on your portfolio? This is over and above the widely known fact that around 80% of the mutual funds worldwide areknown to underperform the Indices. And the fund manager is also subject to performance pressures from the fund house and so has to keep churning his portfolio in order to keep up with the pressure of performing leading to further expense costs. This is one of the reasons I personally do not like mutual funds which do a lot of churning. (You can get the information on portfolio turnover and various expenses of mutual funds from websites like www.valueresearchonline.com or www.mutualfundsindia.com.)

Do you know that ULIP’s (an Investment+Insurance product) carry various expenses which ca be as high as 45 – 60% in the first year. There are umpteen number of charges like (premium allocation charges, mortality charges, admin charges, fund management charges etc, service tax) However the same is never explained by agents.

Do you know the various types of charges associated when you buy/sell shares? There are brokerage charges, service tax, education cess, securities transaction tax (STT), Stamp Duty, Exchange Levy etc.

It makes sense to be aware of these and various other charges involved so that you can make informed choices towards your way to successful investment.

#10. Stop trying to Copy others and Understand your self

Always be a first rate version of yourself instead of a second rate version of somebody else.

Please understand that there is no one-size-fits all solution in the field of investments. Needs and Wants, Risk taking capabilities, vision, emotional quotient, varies from person to person. Many investors make a mistake in simply copying a friend’s (or a relative’s) strategy. Please understand that the strategy might work for him or her. But you need to assess your own situation before jumping into investments and regretting later.

Example: You friend might be doing Futures and Options and Speculation and he might be perfectly all-right with it. He might be having a substantial portfolio base (maybe a good ancestral inheritance) and would be willing to take the additional risk in search for higher returns. However the same strategy of jumping into F&O might not be good for you, if you are basically looking for investments to fulfill your child’s education needs.

Avoid the above common investment mistakes mentioned in this series and become a aware, intelligent and wise investor.