Difference between long term and short-term
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This document compares long-term and short-term equity investments. Long-term investments of 3+ years are based on company fundamentals and ideal for wealth creation as businesses have time to grow. They are taxed at a lower rate and may provide dividend income and bonus shares. Short-term investments under 1 year are riskier due to uncertain markets and frequent trading results in higher fees and taxes. While short-term can provide quick returns, long-term generally offers larger, steadier returns and lower risk.
Difference between long term and short-term
- 2. Overview Investing in equity of a company means buying a percentage of ownership in the company Stock market is based on business cycles, and the business cycles may stretch up to 5 to 7 years Apart from business cycles, stock markets are also affected by factors such as value of currency, economic factors, oil prices and political stability Equity investment can be broadly classified as long term and short term equity investments
- 3. What Is Long Term Investment? Investing for a period of 3 years or more is considered as long term investment Long term investment is generally done on the basis of fundamentals, which again is based on various qualitative and quantitative parameters Successful investors always advocate long term investment in stock markets
- 4. Advantages of Long Term Investment Long term investment is ideal for wealth creation because when you invest for long term, you are essentially giving time to the business to grow and realize its true potential Long term investments in equities are taxed at a lower rate as compared to short term investments Long term investments in equities makes an investor eligible for dividend income which is one of the best ways to earn passive income A long term investor in equities may also get bonus shares as and when declared by the company for the shares held by him
- 5. What Is Short Term Investment? • Investment in stock market for less than 1 year is generally considered as a short term investment • Short term investment can range for anywhere between few days to few weeks or months • Any gains on short term equity investments is taxed at 15 percent in India.
- 6. Disadvantages of Short Term Investment Short term investments in equities are very risky as markets tend to be uncertain over a shorter term Frequent churning of portfolio due to short term investments in stock markets also means higher brokerage charges and taxes It is very difficult to time the market and hence the risk of loss of capital is very high in case of short term investments
- 7. Summary Long-Term Investment Short-Term Investment Ideal for Wealth creation Quick return Expected Returns Large and steady returns Low and uncertain Tax Benefit Lower rate of taxation Higher rate of taxation Risk Low risk Higher risk
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