Buy average of a stock is the average price you have invested per share. Let’s say you traded in the same stock at different prices and on different dates, the scrip will be averaged on a FIFO (First In First Out) basis to make the calculation simpler as you are required to follow the FIFO to determine the P&L to file the income tax returns.
Let’s understand how the FIFO mechanism works with an example of Mr. Mani, a client of FYERS:
As displayed above, HDFC bank shares are bought and sold multiple times by Mr. Mani. On 29th September he sold 8 shares, as per the FIFO method these shares will be deducted from the 12th of September transaction of 10 shares. So, the remaining 2 qty will be taken into consideration while calculating the buy average of Mr. Mani’s holdings.
The updated buy average of HDFC Bank that would display under Mr. Mani’s holdings will be
= ₹1384 {(2*1490) + (5*1380) + (10*1365)} / (10+5-8+10)
Note:
The buy average of the clients’ holdings will exclude the intraday trades.
Holdings sold and bought back during the same day will be considered Intraday and the buy average of the client’s holdings will remain unaffected.
FIFO will apply for BTST trades.