Why is my average rate incorrect after receiving shares from the HDFC Ltd and HDFC Bank merger??

The average rate shown in your Portfolio on SELFIE / TraderX is taken from your Profit & Loss Statement on MyGeojit.

The average rate for shares acquired through corporate actions including mergers, de-mergers, amalgamations, etc., cannot be automatically calculated by the system. Hence, such transactions will have to be manually entered (by the client) on MyGeojit.

Refer to our article on how to update your average rate.

How to calculate your average rate:

For example, Mr. Ram is holding 100 shares of HDFC Ltd. at Rs. 2,000 per share.

HDFC Ltd. announces a merger with HDFC Bank. According to the merger plan, HDFC Ltd. shareholders will receive 42 shares of HDFC Bank for every 25 shares of HDFC Ltd. currently held.

Therefore, Mr. Ram will receive 168 shares of HDFC Bank. This is calculated by multiplying his current holding of 100 shares by the merger fraction (42/25).

Scenario A: Mr. Ram does not have any HDFC Bank shares

After the merger, his Portfolio will show 168 shares of HDFC Bank.

If he doesn't update the actual average rate through MyGeojit, his Portfolio on the trading terminals will display the previous day's closing price as the average rate.

The calculation for the new average rate is given below:

Particulars	Quantity	Average Rate	Total Cost
HDFC Ltd (Original shares)	100	Rs. 2,000	100 * 2,000 = Rs. 2,00,000
New HDFC Bank shares received	168	(2,00,000 / 168) = Rs. 1,190.48	Rs. 2,00,000

To reflect the correct rates in Mr. Ram's account, the following entries must be made through MyGeojit.

Sale entry for HDFC Ltd: Shares sold at the average purchase price i.e., 100 HDFC Ltd shares sold @ Rs. 2,000 per share.
Buy entry for HDFC Bank: Shares purchased at the average rate calculated above i.e., 168 HDFC Bank shares bought @ Rs. 1,190.48 per share.

By making these entries, Mr' Ram's average rate will be modified to Rs. 1,190.48 on MyGeojit and the trading terminals

Scenario B: Mr. Ram is holding HDFC Bank shares in his demat account

In addition to 100 shares of HDFC Ltd, Mr. Ram holds 100 shares of HDFC Bank at an average rate of Rs.1,350 per share.

After the merger, his Portfolio will show 268 shares of HDFC Bank, comprising of the 100 existing shares and 168 new shares received as a result of the merger.

In this case, the average rate of the received shares will be taken as 0 and displayed as:

Particulars	Quantity	Average Rate	Total Cost
HDFC Bank	100	Rs. 1,350	100 * 1,350 = Rs. 1,35,000
New HDFC Bank shares received	168	-	-
Average Rate	100 + 168 = 268	(1,35,000 / 268) = Rs. 503.73	Rs. 1,35,000

To reflect the correct rates in Mr. Ram's account, he must make a purchase entry for 168 shares of HDFC Bank at Rs. 1,190.48 per share through MyGeojit.

Particulars	Quantity	Average Rate	Total Cost
HDFC Bank	100	Rs. 1,350	100 * 1,350 = Rs. 1,35,000
New HDFC Bank shares received	168	2,00,000 / 168 = Rs. 1190.48	Rs. 2,00,000 (Original holding cost of HDFC Ltd)
Average Rate	100 + 168 = 268	3,35,000 / 268 = Rs. 1,250	1,35,000 + 2,00,000 = Rs. 3,35,000

The purchase and sales entries can be made on the original purchase date of HDFC Ltd for income tax purposes. This is because the period of holding for tax calculations will be based on the purchase dat of HDFC Ltd. rather than the date on the which HDFC Bank shares are received as a result of the merger.

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