The Story of Mr.Smart & Mr.Wise...

This is a story of one Mr.Smart and one Mr.Wise.

Trader A = Mr.Smart

Daily buys one lot Nifty futures (total value Rs.250000).

Daily he makes 0.5% (assumption).

(In reality he will be gaining and losing different percentages everyday as per the market conditions. On an average 0.5% every day can be assumed fairly.)

There are (on an average) 20 trading days in a month.

Thus he makes Rs.250000 x 0.5% x 20 days = Rs.25000/- pm per lot of nifty.

Brokerage (@0.15% per day including security transaction tax) = Rs.250000 x 0.15% x 20days = Rs.7500/-

Earning after brokerage = Rs.17500/-

He has to pay 30% income tax on Net Earning (Earning-Brokerage)=Rs.17500 x 30% = Rs.5250

Net Monthly Earning of Mr.Smart= Rs.17500 - Rs.5250 = Rs.12250/-

----------------------------------------------------------------

Trader B = Mr.Wise

Selects and buys 2500 shares of a stock XYZ @ Rs.100/- per share at the start of the month = Rs.250000/-

Stock goes up 10% in the month = Rs.25000/-

Minus Brokerage @1.5% (including securities transaction tax) = Rs.3750/-

Earning after brokerage = Rs.21250/-

Pays 10% Short Term Capital Gains Tax on this = Rs.2125/-

Net Monthly Earning of Mr.Wise= Rs.21250/- minus Rs.2125/- = Rs.19,100/-

----------------------------------------------------------------

Monthly Earning of Mr.Wise was 56% more than that of Mr.Smart.

Plus

Zero Stress, Peace of mind

No Leverage, No Risk of circuit and disaters

Time Freedom, more time for self and family

----------------------------------------------------------------
Mr.Smart was hurt to read this.

He decided the following "smart"strategy to beat Mr.Wise hands down -

"I also have Rs.250000/- with me. Why do I spend only Rs.30000/- as margin?

I can easily buy 4 lots of Nifty with Rs.120000 (Rs.130000 will still be left as buffer)

This way my net earning will be Rs.50000/- instead of Rs.12250/- (much more than Rs.19100) of Mr.Wise!"

----------------------------------------------------------------
Everything went well for a few months. Almost as per Mr.Smart's plan.

But after 4 months, a terrible adverse news plunged the market by 20% and Mr.Smart was in trouble.

He went to Mr.Wise who gladly helped him.

Both became friends and remained happily thereafter!