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How Long is the Long Term ?
O n the personal investment front, we always come across one very common term from the financial advisors invariably — “Long Term”. Mostly anything pertaining to equity — be it Mutual Funds, Direct Equities or any Unit Linked Products — investors are always guided for “Long Term Investments”.
This particular terminology — obscured by subjectivity of the term itself — mostly gets lost in the crowd of many other quantitative jargons like IRR, CAGR, etc. But in very real fact, this term only defines the objectivity or the purpose of that particular investment and thereby materializing the goal of the investor.
But how long is the long term?
Officially, it is defined as per the taxation procedures of the country on capital gain. Like in India, investments in listed stocks, equity categorized mutual funds are considered long term if the holding period is more than one year. Else, it is considered as a short term. For other debt instruments, the long term is defined as three years. In Canada, any realized capital gains through sell or switching (within or outside the mutual fund trusts) are being flatly taxed at fifty percent of the gain. Again, in the USA, the taxation of short and long term is being defined as lesser or more than one year.
