If you hold your investments for the long term, you're more likely to make money. We recommend that you should stay invested for > 5 years in order to receive maximum benefit from your mutual fund investments. Here’s why:
- Rational, not Emotional: One of the best things about long-term investing is that it almost entirely removes your emotions from the equation. A market that jumps 10% in a matter of days isn't going to have you sitting on the edge of your seat to sell, and a hiccup in overseas markets that sends the Indian markets down 3% isn't going to make you panic. Although short-term fluctuations seem random, your investments will tend to reflect the overall growth and productivity of the economy in the long run.
- Long-term Smoothening: Although stocks do have a chance of rising or falling unpredictably, they can only fall to Rs.0. But they can rise infinitely. If you continue with your winners, there's a good chance that, over the long run, you're going to see your investments grow in value.
- Transaction Costs: Long-term investing will also save you other expenses, such as transaction costs from active trading.
- Tax Savings: Putting your money to work for the long-term rather than short-term also provides tax advantages on capital gains. Long-term gains (equity funds held for over 12 months and debt funds held for over 36 months) are taxed at rates much lower than your income tax bracket. Short-term gains, on the other hand, are taxed as regular income. When you sell your holdings, Clearfunds automatically calculates your long-term, non-taxable amount to help you make a tax-efficient decision.
- Peaceful Sleep: And finally, being a long-term investor will allow you to sleep better at night. You won't have to wake up every morning, worrying whether your holdings dropped overnight.