Suppose you bought 120 shares at ₹900 in 2022 and another 120 at ₹1,500 in 2025. If you sell 120 shares today at ₹1,700, FIFO rules in a single Demat account mean you’ve sold the 2022 shares.
“FIFO applies per account, not per PAN,” Kumar explains. That means a Secondary Demat account isn’t a loophole—it’s a structural strategy.
One little-known Demat rule could be quietly draining your portfolio’s compounding power—and costing you thousands in taxes. Financial consultant Aman Kumar warns that the FIFO (First In, First Out) rule, often overlooked by retail investors, can significantly impact how much tax you pay—and what shares you lose.
In a LinkedIn post, Kumar lays it out simply. If you own shares of the same company bought at different times and prices, and you sell some, FIFO kicks in. That means the oldest shares are considered sold first—regardless of your actual intention.
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Here’s the trap.
Suppose you bought 120 shares at ₹900 in 2022 and another 120 at ₹1,500 in 2025. If you sell 120 shares today at ₹1,700, FIFO rules in a single Demat account mean you’ve sold the 2022 shares.
The result:
- Gain = ₹800 per share × 120 = ₹96,000 (classified as Long-Term Capital Gain)
- Tax = 12.5% = ₹12,000
But more critically, your long-term compounders are gone.
“That’s the real cost,” Kumar writes. “Your long-term compounding lot is gone.”
Enter Zerodha’s new Secondary Demat account. With this setup, investors can choose to sell from the newer 2025 lot instead—legally avoiding FIFO’s grip.
Same sale, but this time:
- Gain = ₹200 per share × 120 = ₹24,000 (as Short-Term Capital Gain)
- Tax = 20% = ₹4,800
And importantly, your long-term holdings stay untouched.
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The tax may be higher in percentage terms, but the actual outgo is significantly lower—and the compounding engine stays intact.
“FIFO applies per account, not per PAN,” Kumar explains. That means a Secondary Demat account isn’t a loophole—it’s a structural strategy.
The key takeaway? Don’t let FIFO kill your compounding. For serious investors, separating long-term holdings from short-term trades using a second Demat could be a game-changer—not just for tax savings, but for long-term wealth creation.
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