For good returns, equity investment should be held for these many years

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Updated: August 20, 2019 2:50:31 PM

A longer horizon allows a fund manager to stick to stocks wherein he has high degree of conviction, which may need time to play out depending on the stage of the economic cycle.

Equity investment, good return, personal finance, Sebi, Securities and Exchange Board of India, investmentEquity investments should be held for at least seven years for good returns

> For a large cap equity find, what should be the ideal holding period if I invest a lumpsum amountnow?
– Parikshit

Equity investments should be ideally held at least for a horizon of more than seven years. A longer horizon allows a fund manager to stick to stocks wherein he has high degree of conviction, which may need time to play out depending on the stage of the economic cycle. Equity is more volatile and its performance may vary significantly year-on-year but over longer horizons, equities tend to deliver significant upside. Also, the longer the investment horizon, lower is the probability of capital loss.

> Do I have to pay any tax at the time of redeeming units of a gold ETF?
—Suhash Kiplekar

Yes, you would have to pay tax on the capital gains on the investment at the rate of 20% post indexation (excluding surcharge and cess).

> I have been advised to park money in liquid funds. Is it safe and how can I withdraw the money when I want it?

—Prem Kumar Singh

Watch: HOW TO FILE ITR I? INCOME TAX FILING EXPLAINED IN 12 STEPS

Liquid funds invest predominantly in money market instruments (CDs, CPs, T-bills, Repo, FDs, etc.) and corporate bonds with a residual maturity of less than 91 days. They involve very low credit risk as the underlying investments are into highly rated paper with low probability of default. Liquid funds track interest rates in the money market and currently offer a YTM of about 6-7% (as of June 2019), which on a post-tax basis even for the highest tax bracket investor works out to be higher than the 3.5-4% savings account interest offered by most banks today.

You may redeem your investment online or through the physical mode by dropping in a redemption request form at any of the AMC offices or R&TA centres. Redemption in a liquid fund is on a T+1 basis, i.e. your account would be credited with the redemption amount on the very next bank working day. In a circular dated June 27, 2019, Securities and Exchange Board of India (Sebi) has mandated a graded exit load for liquid funds for a period up to seven days. Also, the valuation of debt and money market instruments done on an amortisation basis earlier (for residual maturity up to 60 days) would now be marked-to-market daily, which could lead to minimal risk for investors given the low duration. The timeline for these changes to take effect have not been specified yet by Sebi.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to fepersonalfinance@expressindia.com

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