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.

Financial Awareness

STT hike further stacks the odds against retail traders