Yesterday NSE Nifty index has reached to its all time high of 9122 from its previous high of 9119 that hit on 4th March 2015 as BJP won the state assembly election. During this two years, Nifty has seen many ups and downs. But that’s the normal behavior of stock market. That’s the reason we ask people not to invest in equity for short time as chances of losing money is higher in short term as compare to long term. If you look at the historical data of share market, you will see many booms and corrections and there is enough data available to analyze this statement.
To validate the statement we have checked the performance of stock market for different intervals. We have checked Sensex’s performance since its inception and here is what we found:
If you check the 1 year performance there are 12 out of 36 years where returns are negative. For 3 years return same is 6 out of 34 years. For 5 and 7 years investment, probability of loss is only 3 times out of 30 years. This clearly indicates that as investment time increases probability of loss is decreasing. There is a straight co-relation of investment period and returns. Based on the above historical data we can conclude that if you invest in stocks or mutual fund for minimum of 10 years, then there is no chance of losing your money. In the period mentioned above large cap has delivered at least 12% and midcap has delivered 20% returns.
Now you know for how much time you should stay invested to gain good returns. Also, please do not assume that all your shares/funds will give you same returns. You need to select your stocks based on your holding capacity(horizon)
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