How Long is Long Term When Investing in Equity?

In personal finance, there are many terms that mean nothing at all, some that could mean anything, and a few that mean different things to different people. 

One such term is ‘long-term’. How long is long-term? Everyone’s answer is different, perhaps legitimately so. Even so, there must be a period when the benefits of a long-term investing strategy become obvious to all. 

Some years ago, Fidelity Investments conducted a study in the US to find out more about this and discovered something rather odd: being dead could be a good investing strategy. They discovered that the highest returns were earned by investors who had just ignored their investments for years and decades. What’s more, it also turned out that many of these investors had actually died at some point. So the conclusion was that when it comes to managing your investments, the best strategy could be to what a dead person would do—nothing. 

While Fidelity actually studied a large number of investors, we all know many anecdotes like this. Sometime last year, someone called into a stock market channel with a story of this category. This person—who seemed to know almost nothing about equity investing—said that about 25 years ago, a relative had bought 20,000 shares of MRF. He wanted to know whether those shares would have a good value today. It turned out that if this number was correct, then the shares would be worth around Rs 130 crore. Even if the number of shares was exaggerated, an investment in this company would have multiplied by about 200 times over the period mentioned. 

From the punters who think that three four months is long-term, all the way to examples like above, there’s a huge range of answers to the question, ‘how long is long term?’ As it happens, there’s one official answer from the revenue department of the Government of India. For the purpose of calculating your taxes, investments in listed stocks and equity mutual funds are considered long-term if the holding period is one year. For other investments, the limit is three years.