Holding Period
Updated on March 1, 2023
Holding period means the duration or time frame during which an investment is held by an investor. It can also be understood as the period between the purchase date and the sale or redemption date of a financial security. The holding period is also used for calculating the payable tax on the investment as per capital gains or losses. Some investments have a compulsory holding period like the Equity Linked Savings Scheme (ELSS) of Mutual funds or Public Provident Fund (PPF) or Fixed Time Deposits of banks.
Why is Holding period important?
Some key benefits of Holding period are:
1. Returns – The return on an investment is a factor of both the rate of interest and the time for which the investment is held. Generally, for equity and equity related products, the longer the holding period, the better are the returns.
2. Taxation – The tax levied on certain assets is calculated on the basis of the investment duration. If the asset is sold at a profit before completion of a specific duration, it attracts short term capital gains tax, like in stocks. Similarly, an asset held for a long time attracts long term capital gains tax, like in stocks and equity mutual funds.
