Staying in the stock market without incurring any loss is almost impossible. Hence, investors must play safe and smart in the equity market. When it comes to investing for the future, the primary objective is to make maximum profit with the minimum loss. Generally, driven by the fear of loss many investors avoid the path of the equity market. In reality, there are ample opportunities in the equity market, one needs to find the right way of investment. We know that Value of money changes with time. Hence, time horizon plays a significant role in investing. In absence of enough experience in the stock market, one should not go for short-term investment. In that case, long term investment in share market is the safest and the most secure way.
Today’s topic is slightly different from the regular long term investment in share market. Here, in this article, we are going to discuss the strategy and importance of long-term investment for retirement. After stating the importance of long term investment in share market, we will cover the strategies of it.
Importance of Long Term Investment in Share Market
The significance of long-term investment in the share market is given below:
Less Riskier than Short-Term Investment
The short-term investment in the equity market is much riskier in comparison to the long-term. When you choose to invest in a long-term horizon, the risk factor or the chances of loss will automatically be minimized.
Most of the intraday trader, short-term traders lead a stress full life because of the daily price fluctuation in the market. In the long-term investment, the stress level is quite low or nil. Investors only need to take one-time decision for investment for a long-term.
One time Analysis
Unlike the short-term, long-term investors need to do the one-time analysis. Therefore, investors don’t have to do much hard work in comparison to short-term investment.
One can get tax benefits through the systematic investment plan.
Long-Term Investment through SIP (Systematic Investment Plan)
SIP or systematic investment plan is one of the most well-known and popular investment options available in the market. Some of the investors have the misconception that SIP available only for the mutual fund. It’s not the right concept. The systematic Investment plan option is also available in the equity market. Let’s have a quick look at the definition of the systematic investment plan.
The term “Systematic Investment Plan” reflects the features and characteristics of the plan. By applying this plan one can invest systematically for the bulk of one or more stocks. The plan has a common trigger date and frequency, all the process happen in a disciplined manner.
How to Invest in Equity SIP
There are many brokers in the stock market who offer Equity SIP or Stock SIP. By the SIP option, investors can buy, index, shares, ETF (Exchange Traded Fund) etc at a regular interval. Just like the mutual fund, equity SIP also has varying frequencies, daily, weekly or monthly. Here, investors only need to select the stocks and register them under equity SIP. Rest of the work is the broker’s responsibility. The broker will place the specific number of orders at a regular interval of time. Different brokers have different rules and regulations of SIP.
Benefits of Long-Term Investment through SIP
- From the very early age, one needs to save money for retirement. One doesn’t need to invest a large sum of money in Equity SIP. A small sum of money at a regular interval in SIP has a great power of compounding. The equity market is quite a volatile market. Hence, one can not avoid the risk of loss fully. So, if you are going for SIP, the average profit make up the minimum loss amount. You will have a greater benefit in SIP rather than normal investment in the equity market.
As an example, a chart is given below. Suppose in equity SIP, one invest only 1000 Rs per month @15%. The growth level is given below:
|Time Period (In Years)||Investment||Return|
- Investors also able to avoid the short-term market volatility.
- The SIP option is beneficial for both cash and tax.
- The capital requirement is quite low. Investors don’t need to invest lump sum money to get a sufficient return at the age of their retirement.
- Investors can lead a stress-free life.
- The return in equity SIP can be much higher in comparison to mutual fund SIP.
Types of SIP
Broadly, there are two types of SIP, Amount based equity SIP, Quantity Based equity SIP.
- Amount Based Equity SIP: Here, a pre-fixed amount will be invested for the desired section of stocks at a regular interval of time.
- Quantity Based Equity SIP: In this category, if systematic investment plan, a fixed quantity of stocks will be bought at a regular interval of time.
Like the mutual fund, equity SIP calculator is also available for stock SIP. Investors can check the approx future return by using the calculator. The equity market is full of opportunity. Investors only need to find the right time and way to enter the market. However, the systematic investment plan not only brings the profitable return but also make the investors discipline in their financial life. Anyone with the limited amount of capital can choose the way of SIP. Averaging and compounding are the main strength of the particular plan. Retirement age should be stress-free. Therefore, investors should be prepared from the very early age. Hence, Long Term Investment in Share Market is one of the most effective ways of investment options for retirement.