Patience pays

Investing in equities is a must to ensure high growth for your portfolio. To minimise the chances of loss and maximise gains, stay invested for the long term.

Print Edition: May, 2010

By now, it must be clear that investing in equities is indispensable for a healthy growth of your portfolio. However, do not be greedy and seek returns in the short term. Most investors lose money by taking on more risk than they should and churning their equity portfolios too often. Instead, stay invested for the long term and use the money only when the financial goal is near. Here are some of the things you must remember about equities:

Invest for the long term: The best returns come to those who wait. Equities generate the highest returns in the long term and face minimal chances of loss. So if you have bought good companies, stick with them.

Review your portfolio: This does not mean you must make unnecessary changes. By doing so, you do not allow your investments to multiply in value through the power of compounding. Too much churning also increases the cost of investment. You may have to pay short-term capital gains tax of 15 per cent if you book profits within a year.

Do not try to time the market: Stock markets are inherently volatile. Therefore, you cannot predict the movement of stock prices. Do not be influenced by fads or trends. Stick to good businesses and you will reap rich dividends in the long term.

Believe in India's economic growth: All factors seem to favour the prediction of high growth. Domestic savings have been over 30 per cent for the past six years. The workforce is expanding, which should lead to higher savings and productivity. Over 70 per cent of the population is rural; focusing on their needs will boost income and generate demand for the economy.

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