“Many investors enter high-risk trades without understanding them. Educating people about market risks and diversification is far more effective than trying to curb participation through higher STT or other levies,” said the 56-year-old, who is also pursuing a PhD in financial literacy and its impact on mutual fund investment decisions.
But the Union Budget 2026-27 has taken a different tack, raising the cost of F&O trading and making frequent short-term trades for investors like him more expensive.
Higher taxes and fees push up breakeven levels, with implications for retail investors’ savings, investment behaviour, and long-term financial planning.
Small traders feel the squeeze
Short-term F&O trading is already a difficult business for retail individuals. A higher securities transaction tax (STT) just makes it tougher. When transaction costs rise, the first thing to change is the breakeven. You need the market to move more in your favour just to not lose money.
“Take a simple Nifty 50 example. If the Nifty 50 is at 25,000 and your total transaction cost is 0.1%, that’s 25 points gone immediately. Before you make anything, the Nifty has to move more than 25 points in your favour just to break even. If it moves 15 or 20 points, you are in the right direction, but you still lose money after costs,” said Mohit Mehra, vice-president, primary markets and payments, stockbroker Zerodha.
“Futures STT rises from 0.02% to 0.05% on contract value (150% increase). Options STT unifies at 0.15% on both premium (from 0.10%) and exercise (from 0.125%). These apply uniformly to retail traders, amplifying impact for frequent short-term positions,” said Madhupam Krishna, Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors.
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Between 2021-22 and 2023-24, individuals paid over ₹50,000 crore in transaction costs while trading F&O, SEBI data showed. Of this, more than ₹25,000 crore was brokerage, around ₹13,800 crore went to the government in the form of STT, goods and services tax (GST), and stamp duty, and another ₹10,200 crore went to exchanges, according to Mehra.
Further, Sebi’s July 2025 report revealed that nearly 91% of individual retail F&O traders incurred net losses, with the average loss per losing trader around ₹1.1 lakh, while only a very small fraction earned meaningful profits. A major reason behind this outcome is the cumulative impact of taxes and charges. Every trade carries STT, brokerage, exchange transaction charges, GST, and other levies.
While each cost may appear small in isolation, frequent trading multiplies these expenses significantly. “Even when traders generate gross profits in some positions, the net result often turns negative after all deductions. Over time, this steady cost drag erodes capital that makes recovery harder and encourages higher risk-taking, which further deepens losses,” said Ravi Singh, chief research officer at stockbroker Master Capital Services Ltd.
The impact of high STT
The increase in STT in the Budget 2026 makes short-term trading more expensive at every step; when you enter a trade, exit it, and trade frequently. “For retail investors in F&Os, profits are usually very small. Even a small rise in costs can wipe out these gains. Since F&O trading uses leverage, losses also grow faster. Higher costs only speed up losses for small traders who have limited capital and short time frames,” said Prashant Mishra, founder and chief executive, investment advisory setup Agnam Advisors.
Zerodha CEO Nithin Kamath said the Budget 2026 STT hike is unlikely to curb F&O speculation and may instead pressure trading volumes, especially in futures. 95% of F&O volumes are already in options.
“The hike disproportionately hits futures (150% STT rise), potentially accelerating shift to options despite speculation concerns,” said Krishna.
Repeated cost-driven losses in F&O trading erode retail investors’ capital base. Investors often develop habits that undermine consistent savings and derail structured long-term plans, such as retirement or education funding.
Persistent small losses from STT, brokerage, and fees trigger “loss chasing”, where traders double down to recover, amplifying drawdowns and diverting monthly surpluses from systematic investment plans (SIPs) or fixed deposits into high-risk bets.
A 2024 Sebi study showed that over 75% of loss-makers continued despite making losses in the preceding two years, creating a cycle of addiction-like behaviour that prioritizes short-term recovery over disciplined accumulation.
From a behavioural standpoint, repeated, cost-driven losses tend to weaken savings discipline. “Investors often divert surplus capital from long-term goals into short-term trading, which can disrupt financial planning and increase vulnerability during market stress. Capital meant for future goals, emergency funds, or systematic investments frequently goes to trading in the hope of recovering losses as transaction fees and lost trades drain capital,” said Prakash Bulusu, joint CEO, wealth management firm IIFL Capital.
Losses in F&O trading do not stay limited to the trading account. “Over time, people start using money meant for long-term goals, stop regular investments, or take bigger risks to recover losses. This slowly damages saving habits, financial discipline, and confidence in long-term planning,” said Mishra.
Since STT is set to become the largest driver of trading costs in F&O trading, if volumes contract meaningfully, stockbrokers might need to further raise brokerage costs for traders. “In that scenario, the combined impact is lower volumes, higher friction, and a bigger hit to market trading economics overall,” Mehra added.
Way out: SIPs
Long-term investment options, such as mutual funds, are far less sensitive to transaction costs and short-term market volatility.
“Unlike F&O, which depends on frequent entries and exits, mutual funds operate with lower portfolio churn and professional management that reduces the impact of taxes and charges on returns,” said Singh.
Also, mutual funds allow investors to benefit from diversification and the power of compounding over time. In this higher-cost post-budget environment, where trading costs are rising, long-term investment options built on patience and asset allocation become more resilient and effective for retail investors.
Monthly SIPs enforce discipline. For instance, assuming a 12% annualized return—historical average equity return—from an equity mutual fund, a monthly SIP of ₹5,000 can turn into ₹1 crore over 20 years.
“Mutual funds suit retail investors and financial planning via LTCG tax (12.5% post ₹1.25 lakh exemption on equity funds) on holdings over a year, avoiding F&O’s business income taxation and speculation risks. Hence, mutual funds are ideal for retirement, education, or various life goals for retail investors,” said Krishna.
