LONG TERM INVESTMENT

WHAT IS 'LONG TERM'

Long term refers to holding a stock/asset for an extended period of time. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 10 years or more..

It is often said that you need to take a long-term view when investing in stock markets. But very few investors have any idea what, in fact, is the long-term! And many would-be investors are put off saving through the stock markets because they don’t feel they can take the long-term view.

The first simple step to understanding what ‘long-term’ actually represents is to make the distinction between the person who is saving or investing regularly (and that includes the person with a pension)

The regular investor invests from cash flows, so that he/she is able to invest perhaps every month, every quarter or even annually. The key point is that they do not invest all of their savings or capital at one goes but invest over time, and this has a significant bearing on what timeline one needs to take.

The lump-sum investor, on the other hand, already has capital from in heritance or the sale of a business or property. The lump-sum investor does not have the opportunity to add to that capital so that whatever monies he/she invests in risk assets they will not have an opportunity to add new monies in.

Investing regularly makes it easy to iron out the volatility in markets. Here, you are investing when markets are high and low, when markets offer good value and when they are overvalued. Overtime, you get the average values and the average returns which have been circa 40% per annum over the past century in the developed markets.

BREAKING DOWN 'Long-Term Investments'

A common form of long-term investing occurs when company A invests largely in company B and gains significant influence over company B without having a majority of the voting shares. In this case, the purchase price would be shown as a long-term investment.

When a holding company or other firm purchases bonds or shares of common stock as investments, the decision about whether to classify it as short-term or long-term has some fairly important implications for the way those assets are valued on the balance sheet. Short-term investments are marked to market, and any declines in value are recognized as a loss. However, increases in value are not recognized until the item is sold. Therefore, the balance sheet classification of an investment – whether it is long-term or short-term – has a direct impact on net income reported on the income statement.

Held to Maturity Investments

If an entity intends to keep an investment until it has matured and the company can demonstrate the ability to do so, the investment is noted as being “held to maturity.” The investment is recorded at cost, although any premiums or discounts are amortized over the life of the investment. The long-term investment may be written down to properly reflect an impaired value. However, there may not be any adjustment for temporary market fluctuations. Because investments must have an end date, equity securities may be not be classified as held to maturity.

Available for Sale and Trading Investments

Investments held with the intention of resale for a short-term profit are classified as current investments. A trading investment may not be a long-term investment. However, a company may hold an investment with the intention to sell in the future. These investments are classified as “available for sale” as long as the anticipated sale date is not within the next 12 months. Available for sale long-term investments are recorded at cost when purchased and subsequently adjusted to reflect their fair values at the end of the reporting period. Unrealized holding gains or losses are kept as “other comprehensive income” until the long-term investment has been sold.

Whether I have selected the right funds?

While you have selected schemes from different categories and it has a balance of largecap, multicap, smallcap and midcap. However, if as a financial planner, I look at financial goals and map your investments with your goals, to be specific, in your case, I would advise you to choose – direct option in all funds (assuming you would invest seeking advice from an advisor), and a financial planner would guide you on the same, helping you in choo ..

Long Term Investment



1 YEAR

Rs. 10,000/-

2 YEARS

Rs. 20,000/-

3 YEARS

Rs. 30,000/-