My “Process vs. Outcome” Story: A Capital Gains Tax Dilemma

A note from the author: This is the seventh article in a series where I aim to share my personal financial journey and the decision-making framework I use. I am not a financial advisor, and these are reflections on my own choices, values, and rationale, not recommendations for others. I hope that by sharing my thought process, I might offer a different viewpoint or spark useful reflection and discussion for those navigating similar paths. I welcome alternative, including contradictory, perspectives. If you find any factual errors in this article, I would appreciate it if you could point them out.

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In the previous article, I shared a case study of a major investment in an individual stock (Airtel) and the lessons I gathered from that multi-year experience. That was a story about flawed reasoning and emotional biases over a long period.

This article is a different kind of case study. It’s a micro-look at a single decision I had to make, where I had a clear process and all the available information. But, as we all know, the market had other plans. For me, this experience was the ultimate test of my conviction in valuing a sound process over a perfect outcome.

If you’re new here, I recommend starting from the beginning to get the full context. You can find all the articles in this series on this page:

https://chiranjeevsingh.me/tag/myfinances

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In one of the previous articles, I shared my journey of shifting my investments from index funds to Parag Parikh Mutual Fund (PPFAS) once I found an alignment with their investment philosophy. The practical side of this shift involved selling my existing index fund units, which brought up an interesting decision point regarding capital gains tax.

The Situation: Long-Term vs. Short-Term Gains

A large portion of my index fund holdings were more than a year old. In India, this meant they qualified for long-term capital gains (LTCG) tax, which is generally lower. However, a smaller part of my holdings was still “short-term” – held for less than a year – and would attract a higher short-term capital gains (STCG) tax if sold immediately.

Within these short-term units, some were relatively new (less than ten months old), but a few were approaching their one-year anniversary – specifically, they were over ten months old but not yet twelve. This raised a question: should I sell these “nearly long-term” units now and pay the higher STCG tax, or hold onto them for another couple of months to benefit from the lower LTCG tax rate?

My Decision-Making & The “Napkin Math”

I decided to sell the units that were ten months old or less immediately. For those that were more than ten months old, I decided to hold them for the remaining period (less than two months) to let them qualify for LTCG. Here’s the rationale and the simplified math I used at the time:

1. Assumed Average Returns: I based my calculations on long-term averages:
   • Index Funds: ~12% per year.
   • PPFAS: ~20% per year (based on its past performance).
   • This meant an approximate 8% annual differential in returns in favour of PPFAS.
2. Tax Assumptions (Illustrative for my decision): For my calculation, I assumed:
   • Short-Term Capital Gains (STCG) tax: 20% on the gains.
   • Long-Term Capital Gains (LTCG) tax: 12.5% on the gains. (Note: These were my working assumptions for this decision; actual tax rates can vary and change.)
3. The Calculation for a Hypothetical Rs 100 Investment with a Rs 20 Gain:
   • If I sell now (STCG): The tax on the Rs 20 gain would be 20% of Rs 20 = Rs 4.
   • If I hold for about 2 more months (to qualify for LTCG): The tax on the Rs 20 gain would be 12.5% of Rs 20 = Rs 2.5.
   • Tax saved by waiting: Rs 4 – Rs 2.5 = Rs 1.5.
4. Potential Additional Gain from PPFAS by Shifting Sooner: If I shifted that capital (let’s say the Rs 120 total value) to PPFAS two months earlier, what could be the potential extra gain from its higher average return?
   • The 8% annual differential translates to roughly 0.67% per month (8% / 12 months).
   • For two months, this would be an additional 1.33% (0.67% * 2).
   • On an investment value of Rs 120, this potential extra gain would be 1.33% of Rs 120 = approximately Rs 1.60.

The Verdict of the Math: The tax saved by waiting (Rs 1.50) was almost equal to the potential extra gain from shifting to PPFAS two months earlier (Rs 1.60). Given this near parity, and the certainty of tax saving versus the uncertainty of short-term market returns, holding on for a couple of months to pay lower tax seemed like a sensible choice.

I was aware that I was going by long-term averages and that these might not hold true over a short two-month period. The market could do anything. But without the ability to predict the future or any specialized expertise to suggest those two months would be significantly different from any other, using averages was the only logical basis for my decision.

What Actually Happened? The Market Had Other Plans.

As it turned out, over the next two months, the index funds declined significantly more than PPFAS did. In hindsight, from a purely financial outcome perspective for those specific units, it would have been much better to sell immediately and make the complete shift to PPFAS, even with the higher STCG tax.

The Crucial Lesson: Process Trumps Outcome

So, what did I learn from this specific experience? Perhaps surprisingly, I learned nothing that would make me change my decision-making process for a similar situation in the future.

The process I followed was sensible: I analyzed the situation based on the information and averages available to me, did a reasonable calculation, and made a choice. I could not have predicted that index funds would perform significantly worse than PPFAS over that specific short timeframe.

This is a critical point I want to highlight. Many people draw firm conclusions by looking at outcomes. But when you are making a decision, you only have your process and the available information; you do not know how the future will unfold. Takeaways and learnings must take this uncertainty into account. Just because a sound process didn’t lead to the optimal financial outcome in one particular instance, under specific market movements that were unknowable at the time, does not mean the process itself was flawed.

If I were to face a similar choice again, I would likely follow the same logical process. The alternative would be to try and guess short-term market movements, which goes against my core principle of acknowledging what I don’t know.

This experience reinforced my belief that focusing on a rational, repeatable decision-making process is more important than getting fixated on the outcome of any single decision, especially when external factors like short-term market volatility are involved.

My Experience with Airtel Stock: Investment Decisions, Outcomes, and Lessons Learned

A note from the author:  This is the sixth article in a series where I aim to share my personal financial journey and the decision-making framework I use. I am not a financial advisor, and these are reflections on my own choices, values, and rationale, not recommendations for others. I hope that by sharing my thought process, I might offer a different viewpoint or spark useful reflection and discussion for those navigating similar paths. I welcome alternative, including contradictory, perspectives. If you find any factual errors in this article, I would appreciate it if you could point them out.

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In the previous articles, I’ve shared my foundational savings philosophy, my core investment principles, and my personal take on the quest for ‘alpha’. Now, we move from philosophy to a real-world case study. If you’re new here, I recommend starting from the beginning to get the full context. You can find all the articles in this series on this page:

https://chiranjeevsingh.me/tag/myfinances

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This article details my experience with investing in Airtel stock, from initial purchase to eventual sale. While this series of investments resulted in a significant financial gain, many of the initial decisions were based on intuition rather than any analysis. I share this experience with the intention that some readers may draw some lessons from my experience and my analysis of the experience.

Initial Investment: ₹5,00,000 in March 2021 (Price: ~₹520)

My first investment in Airtel was for ₹5,00,000 in March 2021, purchasing shares for my wife when the price was around ₹520. My decision to invest at that moment was driven by two main thoughts:

1. A positive memory: I recalled an Airtel case study from my MBA program in 2009, which had left me impressed with the management’s collaborative approach with vendors.
2. A price observation: I noted that the stock price had not significantly risen for several years, and I interpreted this as a potential opportunity.

As I reflect on this decision now, I can see that it was based on outdated information and a flawed assumption. I studied about Airtel during my MBA in 2009, and that case study itself would likely have been based on events or strategies from several years prior to that. So, when I was making an investment call for Airtel in 2021, I was relying on information that could have been close to 15-20 years old. A company’s strategic decisions from that long ago, however impressive at the time, offer very little insight into its current valuation or future prospects. Furthermore, my assumption that a stagnant stock price automatically signals an upcoming rise is a common misjudgment. A price that hasn’t grown for years can often signify underlying problems within the company. Clearly, this initial decision was not rooted in sound investment principles.

Second Investment: ₹10,00,000 in May 2021 (Price: ~₹560)

Following a price increase in Airtel stock over the subsequent two months, I invested an additional ₹10,00,000 in May 2021, this time for myself, at a price of around ₹560. My rationale for this second purchase was primarily influenced by the recent positive performance of my first investment.

Looking back at this second investment, I realize it was largely a reactive decision. The short-term success of the first purchase created a sense of confidence. Investing more money simply because the price went up is a classic example of being swayed by recent trends.

Partial Sale and Emotional Responses (June 2021)

Soon after the second purchase, the share price declined to around ₹530. This sudden drop prompted two different actions:

• I sold the initial ₹5,00,000 worth of shares (purchased for my wife) in early June 2021.
• I continued to hold the ₹10,00,000 investment made for myself, despite it being at a loss.

When the share price declined, I became aware of the limitedness of my understanding. I did not know whether the stock will continue to fall or recover. It was a moment where the potential downsides became starkly apparent. So, I sold the shares purchased at Rs 520 in my wife’s name.

However, I decided to continue to remain invested in the shares I bought for myself because I was unwillingness to “book a loss” – I had bought the shares at Rs 560, and the current price was Rs 530. This is a textbook example of what financial psychology calls “loss aversion”—the tendency for people to feel the pain of a loss more strongly than the pleasure of an equivalent gain. This often leads to irrational decisions, such as holding onto losing investments in the hope they’ll recover, rather than making an objective assessment of their future prospects. Logically, if the outlook for the stock was poor, the decision to sell or hold should have been based on the same criteria for both parcels of shares, not on an aversion to crystallizing a loss on my personal account.

Third Investment: ₹20,00,000 in December 2022 (Price: ~₹810)

The stock price subsequently recovered and continued its upward trend. In December 2022, about a year and a half after my previous transactions, I invested another ₹20,00,000 in Airtel shares when they were trading at about ₹810. My primary reason for this substantial investment, even at a significantly higher price, was again largely a “gut feeling” that the company might continue to perform well, a feeling likely reinforced by its sustained price increase over the preceding months.

Sale of All Holdings and Strategic Shift (September 2024)

Airtel shares continued to perform well into 2024. In September of that year, I made the decision to sell all my remaining Airtel holdings. The ₹30,00,000 I had invested (the ₹10,00,000 from May 2021 and the ₹20,00,000 from December 2022) was sold for ₹60,00,000, resulting in a profit of ₹30,00,000 on these specific holdings.

The key reason for selling at this point was a conscious shift in my overall investment strategy: I was in the process of moving my investments to PPFAS. Despite Airtel’s strong performance, and the natural hesitation one feels when selling a winning stock, I had come to a clearer understanding of my own limitations. I recognized that I didn’t possess the specialized knowledge or expertise to confidently analyze individual stocks, assess industry dynamics, or understand macroeconomic factors well enough to justify making large, concentrated bets on a single company.

Post-Sale Observations and Upholding Process (May 2025)

I am writing this in Sept 2025. Currently, Airtel stock is trading around ₹1960. Had I held onto my shares instead of selling them in September 2024, their value would be approximately ₹16,00,000 higher today. It’s also worth noting that during this same period (September 2024 – Sept 2025), the growth in my PPFAS investment, and indeed the broader stock market, has been relatively modest.

When I consider this outcome, the “what if” scenario is apparent. Seeing Airtel’s price at ₹1960 naturally brings a feeling of having “missed out” on additional gains. Those feelings are definitely there. However, I consciously remind myself that the decision to sell Airtel and shift to PPFAS was based on a carefully considered change in my investment process, not on an attempt to time the market perfectly. Short-term market movements are unpredictable. While this particular 12-month period would have favored holding Airtel, my conviction remains that a disciplined investment process is more critical than any single outcome over a relatively short timeframe.

If I were to doubt the rationale for my shift now, simply because Airtel continued to rise, what would that imply? That I should revert to picking stocks based on gut feelings and assume my intuition can consistently outperform dedicated fund managers with extensive research capabilities? That line of thinking doesn’t align with my current understanding. Therefore, while I acknowledge the feeling of missed opportunity, I stand by the correctness of the process that led to the decision.