WHAT ARE THE BENEFITS OF LONG TERM INVESTING?
Though the tremors of demonetization and implementation of GST can be felt till now across various sectors like hospitality, jewelry, etc. but it is believed that the long-term investment is the style of investing which can safeguard you against such volatilities. It can offer you return at a much higher rate, can beat the heat against the inflation and cover you when the market is extremely volatile. Here, in this article, we have listed the reasons why an investor should invest in the long term.
Change in the market expectations-The experts is of opinion that the investors should lower their expectations as it is unlikely that market will continue to grow in the same manner as it did in the year 2017. So, the investors need to be extremely cautious while picking up the stocks and should go ahead with investing in sound companies with an outstanding management.
Intraday trading is risky– intraday trading requires a lot of knowledge and mindfulness on how the market operates. This type of trading should not be done by the people whose sole aim is to generate money. Patience is the pre-requisite in the stock market. Here, we have tabulated the difference between intraday trading and investing in the stock market.
Long-Term Investment reduces volatility risk– Sometimes the stock market tends to get a bullish start and sometimes it lies flat trading at low points, in such cases if you are an intra-day trader your sentiments might get hurt but if you are a long-term investor it is believed that you can recoup yourself a little well. Below is the chart of Tata Consultancy Services for the last 15 years. When we look carefully at this chart, we see the price movement has only moved up, but in short-term, this stock has also displayed extreme volatility.
Tax Saving– In India, the investments are categorized into short-term investments and long-term investments. The long-term and short-term investments attract Capital Gain tax but have a slight difference in the taxes payable.
For Long-Term Investing, the Capital Gain Tax is at 10%. This means that if you have booked a Profit of Rs. 1,00,000 after holding a stock for more than 12 months, you will be paying Rs. 10,000 as a Long Term Capital Gain Tax (LTCG)
Whereas for Short Term investments or Trading, the Capital Gain Tax is at 15%. Taking the same example as mentioned above, if you book a Profit of Rs. 1,00,000 after holding the equity for less than 12 months, you will have to pay a tax amount of Rs. 15,000 as a Short Term Capital Gain Tax (SCGT)
Although there is not a very big life-changing difference between the two taxable figures, saving some money never pinches anyone’s pockets anyway so why not save some!
Saving for retirement-It is said that your investments should align with the risk appetite. Remember, if you are investing with the following objective, it is better to go for a long-term.
- Child Education
- Child Marriage
Assuming that the investment yield return is 12%, and the principal amount that you need to invest is 13,000 per month per month, you can create a corpus of 1 crore at the end of 18 years, if you invest in a good plan.
Long-Term Investment gives you a financial blueprint– Nearly everybody wants to attain a fortune without knowing the necessary steps. The first step is to understand the nuts and bolts of the market and take advice from the professional. Don’t go for a free advice because it is generally by nature and follows the approach of one-size-fits-all. In reality, every individual financial objective is poles apart, hence generic recommendation may not work.
It removes the emotional quotient– The conflict between Syria and the United Stated derailed the Indian and global stock market and the investors felt sluggish. But slowly as the key indicators were released about Inflation (standing at 7.1 percent) the market climbed. So, sticking to the stocks for a long-term helps you to focus on meat and potatoes of the stock and you can easily correct the mistakes.
Long-Term Investment not only gives the investors a large range of stock choices to play with but also offers the robust returns. It gives you the power of compounding. So, keep emotions away from the stock market and start investing.