Duration of Long-Term Investment in Stocks

Duration of Long-Term Investment in Stocks

Long-term investing in the NIFTY 50 index, a benchmark for the Indian equity market, has proven to be a rewarding strategy over the past 24 years. According to an analysis of the index's data, a long-term horizon is generally considered to be 5 years or more.

Based on historical data, periods of 5 years and beyond tend to smooth out volatility and lead to favourable outcomes. The table below demonstrates the average compounded annual growth rates (CAGR) and the percentage of positive returns for various investment periods.

Specifically, average returns over rolling periods ending in 2025 show that 5-year average CAGR is approximately 12.87% with positive returns more than 99% of the time. Seven-year average CAGR is about 12.48%, and 10-year CAGR is about 12.42%, both showing 100% positive returns historically.

Shorter holding periods, such as 1 year or 3 years, exhibit much higher volatility and a significantly lower probability of positive returns. For instance, a one-year investment period has a maximum return of 107.51% and a minimum return of -55.29%, while a three-year period has a maximum return of 62.05% and a minimum return of -15.22%.

Over a 22-year analysis (2003–2024), inter-annual variability was notable, with some years posting negative returns, such as during the 2008 financial crisis. However, multi-year investment horizons demonstrated resilience and growth on average.

The average annualized growth rate of the NIFTY 50 index over the long term approximates 10.14%, reinforcing the benefit of holding equity investments over extended periods to capture this appreciation.

Therefore, investment holding periods of at least 5 years, with 7 to 10 years being ideal, are considered long term for NIFTY 50 equities. Holding periods shorter than that expose investors to greater risk of negative returns due to market volatility.

If you have a short-term horizon (one to three years), it is advisable to avoid equity and explore short-term instruments such as debt and hybrid funds. Historically, there has been no seven-year window where the NIFTY 50 return was negative.

For a twenty-year investment period, the NIFTY 50 TRI has delivered a maximum return of 18.01% and a minimum return of 9.80%. For a fifteen-year investment period, the maximum return was 19.37%, and the minimum return was 8.50%. For a ten-year investment period, the maximum return was 22.37%, and the minimum return was 5.13%. For a seven-year investment period, the maximum return was 30.45%, and the minimum return was 4.89%.

The table below includes the range of returns for time horizons of 1-year, 3-year, 5-year, 7-year, 10-year, 15-year, and 20-year.

In conclusion, long-term investing in the NIFTY 50 index has historically proven to be a stable and reliable strategy, with periods of 5 years and beyond delivering significant positive returns and reduced volatility. Investors seeking to minimise risk and maximise returns should consider holding their equity investments for at least 5 years, with 7 to 10 years being ideal.

Investing in hybrid funds, which offer a mix of equity and debt instruments, could be a strategic move for those with a short-term personal finance focus and a horizon of one to three years, as they seek to avoid equity investments' volatility. On the other hand, for individuals with a longer-term investing mindset, specifically aiming at least 5 years, with 7 to 10 years being ideal, equity funds, such as the NIFTY 50 index, may provide favorable returns and stability over time.

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