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Equity mutual fund: Why you should invest for long-term

Equity mutual fund: Why you should invest for long-term
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As an investor, you want to earn considerable returns. To achieve this some may try to time the market, drive strategies which could maximise return, get into speculation, go on with momentum investing etc.

Some investors may want to earn money in a short span of time while others remain invested for a longer tenure. Being invested for a longer term has a number of advantages that short-term investors may lack.

Tax benefits

The tax treatment for short-term capital gains, where the period of holding is less than one year, is 15% whereas there is no tax liability if held for more than a year, as per prevailing tax laws for FY17.

Advantage of compounding

Staying invested for the long term allows you to take advantage of compounding. Under compounding your returns (i.e. interest earned on your principal) are reinvested again, over time seeking to generate more profit.

Transaction costs

If you are a day trader, transaction costs can play a big role in your trading strategy. Transactions costs include your brokerage, commission and spreads. Again transaction costs with taxes tend to reduce your profits.

Peace of mind

As a short term trader, you have to keep a track of your holdings or positions. Any sudden news or announcements can lead to volatility or fluctuations in price. If the markets open on a negative trend, a carry-over position can result in huge losses.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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