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In the earlier page on how to compute returns on your equity investments, we have thrown light on the first two steps that you should take towards computing the returns. In this page, we will see how to complete the process by taking remaining steps.

Step 3: Selling the shares.
At the time of selling your shares, you have to bear brokerage, Securities Transaction Tax (STT), stamp duty, service tax and turnover tax. This will reduce sale proceeds…
In the above example, suppose you sell 100 shares at Rs. 12000, them again you will have to pay brokerage (Rs. 60), STT (Rs. 15), stamp duty (Rs. 0.30), service tax (Rs. 7.42) and turnover tax (Rs. 0.42). Thus your sale proceeds will be deducted by this amount of Rs. 83.14 and your net proceeds will be Rs. 11916.86.

Step 4: Impact of the holding period.
The gains that you make on your equity and stock investment are termed as ‘capital gains’ and attract tax depending on the investment term… If the investment term is greater than 12 months, the gains are termed as ‘long term capital gains’ and attract no tax. If the investment term is less than 12 months, the gains are termed as ‘short term capital gains’ and attract tax at the rate of 16.995 per cent (inclusive of surcharge and education cess 3 per cent).

Step 5: The tax liability
If the gains are short-term, you will have a tax liability of 16.995 per cent of the gains (inclusive of surcharge and education cess 3 per cent)…

If the gains are long-term, there is no tax liability…
If as per above example, you hold 100 shares for a period more than 12 months, gains made by you i.e. 1847.58 (Rs. 11916.86- 10069.28) will be exempt from tax. If however you sell within 12 months, your short term tax liability will work out to be Rs. 314 (1847.58X16.995/100).

Step 6: Absolute and Annualised returns
Absolute returns are returns wherein the investment term is not taken into account.
It also pays to consider absolute and annualized returns for the purpose of computation of your total returns. Suppose you buy 100 shares of company ABC Limited for Rs. 15000 on January 01, 2008 and sell all your holdings on March 31, 2008 for Rs. 18000. In this case you make a profit of Rs. 3000 on an investment of Rs. 15000. Hence your absolute returns expressed in terms of percentage is 20% (3000”100/15000).

In case of annualised returns, the investment term is taken into account, and then annualised to arrive at the correct picture…
As per the above example, as you have made these returns over a period of just 3 months, your annualized returns are a 80% (3000×100x12/15000×3).