What Is The Difference Between Long Term And Short Term Investments?
Both long term investment and short term investment have their own advantages and disadvantages. To understand which style of investing suits you better, let's take a look at the key differences between them.
What is long term investment?
An investment of 4 to 5 years or more is generally considered as a long-term investment. In long term investment the capital is locked for the entire duration of the investment. Due to less transactions, the overall cost of investment is low as brokerage charges and transaction taxes are applicable only twice, i.e while buying and selling.
What is short term investment?
Short term investment can range from investing for anywhere between few days, weeks, months or one or two years. Intraday trading and buy today, sell tomorrow are some of the prime examples of short term investment in stock markets. In short term, the capital is locked only for a very short duration. Hence the investor has the liberty to execute multiple investments. However due to frequent buying and selling, the overall cost increases as brokerage charges and transaction taxes are applicable every time the investor buys and sells stocks.
Now let's see the difference between these two types of investment which will give you a good idea of what would work best for you.
Short term investment Long term investment
Objective Quick returns Wealth creation
Returns Low and very uncertain High returns
Taxation Short term capital gains applicable
Short term capital gains are taxed at higher rates Long term capital gains applicable
Long term capital gains are taxed at lower rates
Risk High level of risk Low level of risk
History of stock markets reveal that markets have always been stable over the long term, as compared to high volatility in the short term. It is very difficult to predict the market in the short term as there are too many economic, political and global factors affecting it. Irrespective of the market conditions, long term investment in quality stocks have always generated good returns.
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