Nithin Kamath, CEO and co-founder of Zerodha, took to Twitter to advise investors about how they can improve their portfolio returns by doing the “boring things” right in investment. Kamath stated that investors can get higher returns on their long-term holdings by using tax loss harvesting, a practice where investors sell some scrips at a loss to ensure that their tax burden is lower.
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“Successful investing is about doing boring things well. One of them is tax-loss harvesting. Booking a loss can be painful because we are all loss averse, & we instinctively try to avoid losses. But reducing taxes can add up in the long run & lead to better portfolio returns,” Kamath stated on Twitter.
Successful investing is about doing boring things well. One of them is tax-loss harvesting. Booking a loss can be painful because we are all loss averse, & we instinctively try to avoid losses. But reducing taxes can add up in the long run & lead to better portfolio returns. 1/3 https://t.co/r7Uj4wn7BX
— Nithin Kamath (@Nithin0dha) March 23, 2022
Kamath stated by booking unrealised losses within 365 days, investors are able to reduce their short-term capital gains tax (STCG) burden significantly. The current tax rate for STCG is 15 percent on top of any cess and surcharges.
Kamath included handy step-by-step instructions for investors to follow.
“1. Check if you have realised short-term capital gains on which you have to pay 15% tax.
2. If yes, check if you have any holdings with unrealised short-term loss.
3. If yes, sell the holdings (<365 days), book the loss & reduce your STCG & hence taxes.”
The self-made billionaire also added that this practice would lead to the culling of underperforming equities from the portfolio as well.
“This is also a nice way to get rid of duds in your portfolio.”
Kamath’s Twitter thread came in response to a separate tweet from his stockbroker platform Zerodha. Zerodha, which is the country’s largest stockbroker by number of clients, posted on Twitter saying that investors can use its console to find out which stocks they can sell for harvesting tax losses.
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"If you have realised capital gains on which you have to pay taxes, you can reduce your tax outgo by selling any holdings which are in losses before March 31st. This is also called Tax-Loss Harvesting. We have a report on Console that shows you the losses that can be harvested,” Zerodha had tweeted.
If you have realized capital gains on which you have to pay taxes, you can reduce your tax outgo by selling any holdings which are in losses before March 31st. This is also called Tax-Loss Harvesting. We have a report on Console that shows you the losses that can be harvested.
— Zerodha (@zerodhaonline) March 23, 2022
