Why you should think Long-term when investing in Equities?

When it comes to investing for your future, there are a lot of stocks and investment to choose from. Although there is no specified formula or handbook that investors are expected to follow, there is one general rule: "Invest for the long-term and buy in dips". Don't bother about the Market position whether it is all time high or all time low.

If you need funds for the short term, investing in stocks is not encouraged as by the markets leaders because of the nature of volatility of market and can swing in either direction based on a lot of factors. That is why, in India, gold and real estate are preferred investment options. However, if you're looking to your returns 5 or more years into the future, an investment in equities or an equity fund can be ideal.

Here are reasons why long term planning is essential when investing in equities:
1. Power of compounding
Your age and financial responsibility play an important part in your investment decisions. Since youngsters have fewer financial responsibilities such as retired parents, a spouse, children, or car or home loans to pay off, they are encouraged to start their investments early. A young individual also has a high risk-bearing capacity, being able to withstand the swings of the market. Moreover, buying stocks or investing in equity for the long term allows you to take advantage of compounding.

Compounding requires two factors for it to work: the reinvestment of earnings, and time. The more time you give your investments, the more you can accelerate the income potential of your original income.

For example, an investment of 10,000 at 10% will result in 11,000 in one year. If you decide to reinvest the gain of 1,000 and receive the same rate of return, your capital will grow to 12,100 by the end of the second year. By contrast, not reinvesting the gains would have resulted in capital of just 12,000. This difference seems small over short time periods, but if one were to sustain the same 10% annual rate of return over a decade, the difference would show 25,937 for the reinvested corpus, versus just 20,000 total for the portfolio with gains pulled out of the market.

Year	Starting Value	Multiplier	Interest Earned	End Value
1	10,000	10%	1,000	11,000
2	11,000	10%	1,100	12,100
3	12,100	10%	1,210	13,310
4	13,310	10%	1,331	14,641
5	14,641	10%	1,464	16,105
6	16,105	10%	1,610	17,715
7	17,715	10%	1,771	19,487
8	19,487	10%	1,948	21,435
9	21,435	10%	2,143	23,579
10	23,579	10%	2,357	25,937

The above table is for illustrative purposes only.

2. The data doesn't lie
Although there have been ups and down, history shows that if you align your portfolio for the long term, you're more likely to make money, especially if you focus on high-quality businesses.

After the 2008 crisis, many investors terminated their SIPs. This was a really bad choice because the whole point of an SIP is to keep investing, irrespective of market conditions. Investments made when the markets are down big tend to make the greatest profits - as Warren Buffett says, "Be greedy when others are fearful."

3. You can correct investment mistakes in the long term
Anyone can start a long-term investment; you don't have to be an investment guru to invest in well-run businesses for the long term. An important thing to remember is that you will make mistakes; even the best investors have been wrong. But a regular review of investments every six months can help to correct at least some of these mistakes. It is important to hold on to companies that have historically demonstrated strong growth and add to companies whose business models are still intact but have fallen on hard times.

A game of patience

Hope is a dangerous thing, as investors found out yesterday. If the Finance Minister was guilty of presenting an insipid budget that was low on the detail that the market wanted, investors too were perhaps guilty of expecting too much, too soon. That doesn't absolve the Finance Minister of a budget that is low on ambition, boldness and vision but at least it teaches investors to not hope for the moon going into a policy event.

The real damage was done when the FM spelt out the 6.8% deficit number implying a large market borrowing programme with little detail on how he "would get back on the FRBM path". Global rating agencies will pass their judgement in the next few days but the bond market didn't wait that long. The benchmark bond yield shot past 7% raising fears of interest rate spikes and triggering off a collapse in stock prices. At a macro level, that perhaps was the undoing of the market. At a more micro level, a lot of sectors had run up expecting substantial boosts from the budget. Education, real estate, textile and fertiliser stocks which had meaningful rallies leading up to the event collapsed completely . The surprise was Infrastructure, where stocks sold off as well, as apart from an increased outlay for the NHAI the budget was a bit low on bold moves.

Then there was disinvestment, which the market had pinned some hopes on. The pitiful Rs 1100 crore figure which the FM unveiled dashed those hopes. That number is truly inexplicable.

Not that this budget had nothing postive for the stock market and corporate India. The scrapping of FBT, extension of 10A/10B for IT companies, removal of CTT and no rollback of excise cuts were all positives, partly offset by the hike in MAT. The scrapping of the surcharge on personal income taxes may even be a limited consumption trigger. Tobacco companies were spared the axe this time and ITC was one of the few stocks that ended in the green, contrary to investor fears.

Yet what the market wanted was a green signal, that finally the drought on reforms is over. That a government, shorn of the Left, will press ahead with bold policy moves. The charitable view is to accord the FM the benefit of doubt : he didn't have enough time to unveil a big bang budget and the best is yet to come, over the next few months and in the next February budget. The cynical view is that the market is running ahead of itself; despite the electoral surprise, things will improve only incrementally and over a much longer duration than investors want. The truth, as often, perhaps lies somewhere in the middle. While investing in India, the virtue of patience cannot be overstated.

Source : Silicon India

India is the second largest investor in U.K.

India is the second largest investor in the U.K. in 2008 according to an annual survey conducted by Ernst & Young. Indian companies accounted for 49 projects and trailed the U.S. which accounted to 263 projects. Indian companies were able to beat France and Germany to get the second spot. The study sees Bangalore and Mumbai as the next top centers of Global investment.

"The primacy of long-established centers in the developed world, including Europe's capitals, is being challenged by emerging Asian cities such as Shanghai and Bangalore and by regional cities acquiring international expertise," said Marc Lhermitte, Partner at Ernst & Young and author of the report. The study also revealed that business leaders believed Shanghai and Mumbai are seen as more credible alternatives than New York and Silicon Valley or London.

The survey also revealed that London is Europe's preferred destination for foreign investment. Even though London accounted for 262 of the 686 new projects in the U.K., foreign investment in London fell by 13 percent over the last year. Europe is seen as safe place to invest in. "The BRIC regions (Brazil, Russia, India, China) are not providing the absolutely safe ground that international investors are looking for. Europe is seen as predictable and safe," added Lhermitte.

The U.K. retained its ranking as the most attractive European location for foreign direct investment. The U.K. attracted 686 investment projects in 2008, four percent less than in 2007. The 686 investments in the U.K. created 20,000 jobs, ranking the county as the number one location for FDI job creation in Europe.

Sources: Silicon India