Worked Example
Active-Trading-after-costs vs Buy-and-hold: which builds more wealth over 10 years?
Scenario
Rohit, age 30, software professional in Pune, ₹12 lakh annual income, ₹50K monthly expenses, exploring this question for his financial plan
Inputs
- Years
- 10
- Amount INR
- 5,00,000
- Buy-and-hold tax %
- 12.5
- Buy-and-hold return %
- 12
- Active-Trading-after-costs tax %
- 20
- Active-Trading-after-costs return %
- 5
Calculation
- 1.
Active-Trading-after-costs effective post-tax rate
5% × (1 − 20% tax) → 4%
- 2.
Buy-and-hold effective post-tax rate
12% × (1 − 12.5% tax) → 10.5%
- 3.
Active-Trading-after-costs corpus at year 10
₹5L × (1+0.040)^10 → ₹7.40 L
- 4.
Buy-and-hold corpus at year 10
₹5L × (1+0.105)^10 → ₹13.57 L
- 5.
Wealth difference
|740122 − 1357040| → ₹6.17 L
Conclusion
Buy-and-hold wins by approximately ₹6.2 lakh over 10 years — driven by return rate.
Tradeoffs
Post-tax real returns matter more than nominal headline rates. Active-Trading-after-costs loses more to taxation. Risk profiles differ too — guaranteed vs market-linked. Adjust for risk tolerance.