FM proposes hike in STT on F&Os to discourage retail participation
The Hindu
Finance Minister Nirmala Sitharaman proposes higher STT rates on F&O trading to deter retail investors from risky speculation.
Finance Minister Nirmala Sitharaman on July 23 proposed to increase the rate of securities transaction tax (STT) on futures and options (F&O) trade to discourage retail investors' participation in the risky instrument.
"It is proposed to increase the rates of STT on the sale of an option in securities from 0.0625% to 0.1% of the option premium, and on sale of a futures in securities from 0.0125% to 0.02% of the price at which such futures are traded," she said in the Union Budget speech.
This came after the Economic Survey flagged concerns over rising retail investors' interest in derivative trading. The survey stated that speculative trade has no place in a developing country.
It also pointed out that the sharp increase in retail investor participation in F&O trading is likely driven by humans' gambling instincts.
"Derivatives trading holds the potential for outsized gains. Thus, it caters to humans' gambling instincts and can augment income if profitable. These considerations are likely driving active retail participation in derivatives trading," according to the Economic Survey 2023-24.
Recently, Sebi chief Madhabi Puri Buch also cautioned investors against heavy bets on F&O. Before that, Ms. Sitharaman and Chief Economic Adviser V, Anantha Nageswaran flagged the growing risk of F&O trading for retail investors.
F&O trading continues to grow in popularity, and market experts believe that this is driven by the potential for profit and the rising trading volumes. Experts said investors who lack understanding or risk appetite should avoid derivatives trading.