What is long term in equity investment

Most of us hear market experts talking about equity investment are for the long-term. Hardly, we ever hear what long-term in absolute term is. If we consider the tax department anything related to equity is long-term if it is held for one year. We will define long-term as that period when the chances of you losing money is negligible.

To know what the long-term in equity investment is, we carried an exhaustive study of the BSE Sensex since its inception in 1979. We took the daily closing price of Sensex and calculated the rolling returns for different time frames. The time frame that we chose was 1-year, 3-year, 5-year, 10-year and 15-year.

Our study shows that 15-year time period is the period when the equity market has never ever given a negative return. This covers period from the start of March 1979 till the end of May 2019. There were total 5,461 periods. The average annualised return provided during this period was 11.5%, which is similar to other periods.

The above plot clearly shows that median return remains almost same for whatever time you invest in equities. Nevertheless, the variability is highest in 1-year annualised returns and it falls as we increase the tenure of returns. The graph clearly shows that for the 15-year period there is no negative returns.

The following table shows the other important characteristics of the Sensex annualised returns.