InvestorQ : When it come to calculating capital gains for multiple transactions, how is the FIFO method applied and how does it work in practice?
Katherine Gonsalves made post

When it come to calculating capital gains for multiple transactions, how is the FIFO method applied and how does it work in practice?

Answer
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Rutuja Nigam answered.
1 year ago


Before we get into the calculation of STCG and LTCG, there is one more point we need to be clear on. The above illustration is perfect if you have bought the shares in one shot. But that is not what is done normally. Investors tend to buy shares in phases so that they can get the best of rupee cost averaging. It happens quite often that you buy the shares in tranches rather than buying it all in one shot. If all this is done at different costs then the question arises as to which cost to consider for the purpose of capital gains. That is where FIFO comes in. It is assumed that shares are sold in a chronological order; that is the shares that are bought first are sold first and once it is exhausted, the stocks bought next are considered. This is called the First in First out method (FIFO) for the purpose of calculation of capital gains. This is how it works in practice. In short FIFO means that your shares bought are assumed to go out first and then the process continues from there on.