What is Investment V/s Trading in Stock Market
What is meant by an Investment in Stock Market?
Investment is a terminology used in stock market which refers to the process of buying shares of a company for Long Term Period for earning Long Term Profit and not to gain out of day-to-day buying and selling of shares. Investments are to be considered as long-term profit generating assets if properly forecasted and reviewed.
Strategy to Do Investment in Shares:
Investors do the Fundamental Analysis of the company before investing in the shares. Fundamental Analysis include to analyse the Past Revenue Growth and Profit Growth, Future Potential of Revenue and Profit Generation, Financial Position of the Company Balance Sheet – Its Net worth, Equity, Assets Position, etc. On basis of performance of all Key Parameters, Investment is done in the company considering its long-term prospects of remain invested and ripe the gains out of the company’s growth.
What is meant by Trading in Stock Market?
Trading in contrast means buying and selling of stock in a short-term duration to make quick profits. Successful Traders are those who keep awareness and correctly review and forecast price trends and other macro environment factors.
Strategy Used to Do Trading in Shares:
In general traders do the Technical Analysis of the Company to do the Trading. Technical Analysis of shares of company means predicting the future price trends on basis of the recent past data like Price Trend of Price in past month, Average Price of Shares, Support and Resistant levels of prices of shares in short-term, etc.
Also, Traders predict the movement of prices of shares on basis of recent news relating specific to the company or other macro-environment factors affecting stock prices like performance of indexes (Sensex / Nifty), Economic Growth, Geo-political impacts, Prices of Oil / Dollar / Gold, etc.
Risk and Rewards Relating to Investment and Trading in Stock in Market
On basis of the Individual’s Risk Appetite and Investment Goals it should be decided that whether we have to invest long-term or trade short term.
Particulars | Investment in Shares | Trading in Shares |
Risk | Low | High |
Reward | High | Low |
Recommended Investment Period | Long-Term / Mid-Term | Short-Term |
Volatility of Prices of Shares | Low | High |
Author’s Opinion on Trading and Investment
In general, it is very lucrative to do trading and earn profits quickly, however it involves great amount of risk of loss of capital. Further for trading into stocks it is very important to remain up to date with all news related to the company and macro factors affecting share prices on daily basis. It is advisable for general retail investors, to more focus on investing into shares for mid-term or long-term to avoid loss of capital and also invest considering the fundamental prospects of the company. Companies with Long-Term Prospects can multiply your investment amount with sustainable growth.
What is meant by Intra-day trading?
Intra-day trading is a type of process in which stock traders buy and sell stocks within the same trading day. Here the aim is to profit from short-term price movements and typically do not hold positions overnight. The primary goal of day trading is to capitalize on intraday market volatility and price fluctuations. Day trading can offer the potential for quick profits, but it also comes with a higher level of risk due to the short timeframes and increased trading frequency.
Income Tax on Gain in Trading and Investment?
Profit / Loss on Intra-day Trading: Profit / Loss on Day Trading is classified as Speculation Business and Gain / Loss on it is taxable as Business Income and taxed as normal income in hands of traders. Tax Rate depends on Traders Individual Tax Slab Rate which can range from 5% to 35% in India. Further, loss on speculation business is not allowed to be set-off against profits of Other Business Income or Other Sources of Income.
Proft / Loss on Short Term Trading/Investment: Income Tax on Profits earned from Short-term Investment below one year is taxable at 15% of Profit/Gains.
Proft / Loss on Long Term Investment: Income Tax on Capital Gains from Long Term Investment of more than One Years is Taxable at 10% if the total Long Term Capital Gain is above Rs 1 Lakhs in complete year. If the Toal Long Term Capital Gain from Sale of Listed Shares is Less than Rs. 1 Lakhs than whole gain is exempt from tax and it is tax free
Brokerage, Transaction Charges, STT and SEBI Charges on Buy and Sell of Stocks?
The Transaction Charges relating to the Equity Trades affects the Profits / Gains for Investors and Traders. Also, charges form decisive importantly for the traders to maximize the gain. Below is list of charges levied by few brokers and statutory bodies on Equity Transactions as on 03rd Nov, 2023.
Charges | Equity Delivery (Not Same Day Trading) | Intra-Day Trading | F&O Futures | F&O Options |
Brokerage | Zerodha: Free on Buy and Rs 13.5 / Transaction DP Charge Angel One: Free on Buy and Rs 20 / Transaction DP Charge Groww: Rs. 20 / 0.05% Lower | Zerodha Rs 20 / 0.03% lower Angel One: Rs 20 / 0.03% lower Groww: Rs. 20 / 0.05% Lower | Zerodha Rs 20/ 0.03% lower Angel One Rs 20/ 0.25% lower Groww: Rs. 20 per Order | Zerodha Flat Rs 20 per executed order (on Turnover) Angel One Rs 20 / 0.25% lower Groww Rs. 20 per Order |
STT/CTT | 0.1% on Buy/Sell | 0.025% on Sale | 0.0125% on Sale | 0.125% of the intrinsic value on options that are bought and exercised and 0.0625% on sell side (on premium) |
Transaction charges | NSE: 0.00325% BSE: 0.00375% | NSE: 0.00325% BSE: 0.00375% | NSE: 0.0019% BSE: 0 | NSE: 0.05% (on premium) BSE: 0.005% (on premium) |
SEBI Charges | Rs. 10/Crore | Rs. 10/Crore | Rs. 10/Crore | Rs. 10/Crore |
Stamp charges | 0.015% or ₹1500 / crore on buy side | 0.003% or ₹300 / crore on buy side | 0.002% or ₹200 / crore on buy side | 0.003% or ₹300 / crore on buy side |
GST | 18% on (brokerage + SEBI charges + transaction charges) | 18% on (brokerage + SEBI charges + transaction charges) | 18% on (brokerage + SEBI charges + transaction charges) | 18% on (brokerage + SEBI charges + transaction charges) |