Monday, 23 March 2015

Locking in Losses

We are in the last week of the Financial Year, here in India, and it is time for me to lock in any short term losses that I have incurred in my direct equity investments this year.  This is something that I routinely do at the end of the tax year, due to the way taxes are structured in India.  My goal is to lock in STCG (Short Term Capital Gain) losses, to either offset any STCG gains from this year, or from future years (since you can carry over STCG losses into the next year) Remember you cannot write-off STCG losses against salary income.  Also note that LTCG (Long Term Capital Gain) losses cannot be written off against STCG gains (They can be written off against LTCG gains, but then LTCG taxation on equity is NIL, so there is no real benefit)

I reviewed my direct equity portfolio today, and have identified STCG loss candidates, that I will sell over the course of this week.  I might buy some of them back (or similar stocks) in the first week of April, once the STCG losses are locked in this week.  Remember that this transaction cannot be intra-day since it needs to be on actual delivery basis.  This financial year, we had the awesome bull run in 2014, so i don't have any losses to show from stock purchases made during/prior to the bull run. However, things have slowed considerably in 2015, and YTD the stock market has been far from spectacular in its returns.  Most of my 2015 purchases are in the red, and need to be culled both from a portfolio quality perspective, and also from a STCG standpoint.

I only do this financial jugglery with direct stocks that I own, and not with any MF SIPs.  For example, several of my MF SIPs from earlier this year, are showing a notional loss at this time, since the market has retreated from its all time highs seen earlier this year.  However, I intend to hold on to these for the long term, during which time, (hopefully) they will have recovered the notional loss.  In my mind MFs are for long term, so there is no concept of short term sales/losses etc.

One final note is that you can only carry forward losses, if you file your tax return on time before the deadline this year.  I am sure we all do that, so it is just an FYI for the smart investor!

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