What is the Ideal Long-Term Horizon in Equities?
30 Nov 2023
What is the Ideal Long-Term Horizon in Equities?
Investing in equity funds for the long term can be a strategic approach to wealth building. Historically, equities have shown the potential for higher returns over extended periods. Long-term investment in equity funds allows investors to ride out market volatility, benefit from compounding, and potentially achieve capital appreciation.
Defining Long Term
The below criteria can be used to define a period as long term:
• A time frame where investments avoid losses.
• It has high probabilitty to generate double digit returns.
S&P BSE Sensex Range Of Returns For Different Time Horizons
| Range of Returns | 1-year | 3-year | 5-year | 7-year | 10-year | 15-year | 20-year |
|---|---|---|---|---|---|---|---|
| Below zero | 26% | 10% | 1% | 0% | 0% | 0% | 0% |
| 0%-5% | 8% | 13% | 12% | 1% | 0% | 0% | 0% |
| 5%-10% | 11% | 21% | 21% | 28% | 27% | 14% | 2% |
| 10%-15% | 12% | 22% | 35% | 40% | 42% | 65% | 60% |
| More than 15% | 43% | 35% | 31% | 31% | 31% | 21% | 37% |
Source: BSE Sensex 30 PRI, Data based on the daily rolling return of S&P BSE Sensex since January 1999
Historically, the BSE Sensex has never shown a negative return in any seven-year window, meeting the first criteria. Additionally, The index has delivered double digit return over a period of 7 years 40% of the time which again aligns with the second criteria.
Key Takeaways
1. the purpose of this study is not to give you an exact figure for how long you should invest. The intention is to tell you that in the equity markets, always keep a long-term horizon. If you just have a long-term horizon, your return experience will likely be better.
2. The ideal time horizon may vary depending on the benchmark data and time frame, so it’s best to treat the results as indicative.
Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. The information provided is generic in nature and is for informational purpose only. Please consult your financial advisor before taking any decision.
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