Download Financial Express App for latest business news.Designer491/iStock via Getty Images What Is a Long-Term Investment?Ī long-term investment is an asset suitable for an investor with a time horizon of more than 10 years. ![]() Get live Share Market updates and latest India News and business news on Financial Express. The writer is former chairman, Bombay Stock Exchange, and founder and managing partner at Ravi Rajan & Co. ![]() One should be careful that investment decisions should not jeopardise the lifestyle. One must consider the risk appetite which is determined basis the wealth/ net worth as well as risk capital in hand before deciding on any investment. All types of investment products/ securities carry some or the other risk. The quantum of money invested, period of investment, return and growth, expenses associated with it and risk tolerance impact our achievement of investment goals. Investors should watch out for credit rating of debt securities and could invest in better rated securities to avoid default risk. In order to ease loss of capital and avoid liquidity risk, it is ideal to stay invested in bellwether stock or fund. One needs to evaluate the currency risk i.e., in case of sectors such as IT and pharma, opportunities arise when rupee is weak and in case of capital goods & power sector, strong rupee improves investment prospects. In case an individual cannot manage the monitoring, it is advisable to shift to Mutual Funds to protect the capital. For instance, at times of lower interest, price of debt securities moves up and could provide an opportunity for switch in the portfolio. ![]() As a strategy, there could be a possibility of lower returns but would result in alleviating risk of substantial capital loss. This entails selection of various investments products, exposure to equity belonging to different sectors, mix of various options available for instrument. On the other hand, debt instruments like bonds have high inflation risk over time and are susceptible to interest fluctuations. In case an individual starts investment at an early age, then investing in equities offering higher returns over long duration of investment would mitigate volatility and inflation risk. Out of the total capital available for investment, assign amounts in different class of investment such as debt, equity or mix of both depending on growth requirements of capital. Stocks with high PE ratios, unstable management and inconsistent profitability and revenue growth could be eliminated. For example, It is pertinent that before investing in a stock one checks earning growth, PE ratio, debt load, management team and then compare it with other stocks in the same industry on key parameters. ![]() It is essential that before any call on investing, research should be carried out. Some of the tools at the disposal of an individual that he/she must consider to mitigate different investment risk includes: There are also other risks such as risks on account of fluctuation in interest, default risk (non-payment of principal and interest of debt), volatility risk i.e., daily/ frequent fluctuation in prices, concentration risk which is on account of investing in a single type/ sector/theme of asset, currency risk in case of portfolio of investment includes investments in markets abroad/ in forex instruments. Then there is price risk, which is decline in value of the investment instrument resulting in loss of capital, inflation risk causing corrosion in purchasing power. Not getting good returns? 5 ways to increase your investment performance
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