With investing in the stock market, the focus is always on “long term returns” but what if you need results a little sooner? This is where short term holding comes in. It’s an approach that also can let you invest in stocks for a shorter period of time usually from a few days to a few months with the goal of quick returns, but with greater profit comes greater risk.
Short term holding is when you buy a stock and you plan on selling it shortly thereafter, typically within a year. Unlike the long term investors who ride through up and down cycles of the market, short term holders try to take advantage of rapid price shifts. For instance, you purchase a stock for rs.100 and it goes up to rs120 in a month, you can sell to book profit. Active traders employ this strategy.
Timing is just a key element in successful short term investing. Considering the relatively short time frame, short term investors likely used technical analysis, stock charts, news based catalysts and market sentiment when things such as good earnings numbers, a new government policy or a sector that is in vogue.
But it’s worthwhile remembering that short term wins come with short term volatility. Stock prices can be volatile and minor events can cause significant price swings. While patience can help shrink most investor “wounds” in longer time frames, it is a lack of patience that requires investors to think and act fast and be disciplined in the short term.
Another important factor is the preservation of capital. “It is not because exposure times are short that we are not at risk.” Short-term trading, if not approached carefully, can lead to losses, because you’re doing something different from the masses of other investors moving capital left and right — from one asset class to another, from one investment style to another, and from one type of trading to another. This is why risk management, like stopping losses and taking profits on time, is important. From a tax perspective, short-term capital gains on listed shares in India (shares held for less than 12 months) attract 15% tax.
Short-term capital gains in India (from listed shares held for less than 12 months) are taxed at 15%. It is critical to include this in your profit estimate so that you understand your genuine return. Short-term holding can be a valuable experience of learning for beginners, but it should be done with caution. Start modest, monitor the market on a frequent basis, and avoid making judgements based on social media advice or excitement. Always look for stocks with decent liquidity, solid fundamentals, and strong market trends.
At Demystify Capital Markets, we help clients comprehend the benefits and drawbacks of various investing methods, including short-term holdings. Whether you’re trying to make quick trades or create a long-term portfolio, we want to make sure that every decision you make is educated and in line with your objectives. Remember that investing is more than just generating money; it is about making smart money.