Holding period is an essential concept within the field of investments, since it dictates the tax implications for an investment for a particular investor. It is the length of time a security is held by an investor, which is used to determine capital gains or losses. The holding period can influence the tax-liability related to the sale of a security, as the period of ownership dictates whether short-term or long-term capital gains taxes will apply.

The holding period starts to run on the day after the security was purchased and ends on the day the security is sold. The period of acquisition can also be taken into account in the case of securities such as bonds and stock that produce income, as the holder must wait to receive a distribution or dividend before it is sold. Although the holding period is determined starting at the time an investment was bought, losses related to the security that were incurred prior to its purchase by the investor can be set against any future gains on a pro-rata basis.

In addition to tax implications, the holding period can have a major influence on an investor’s return. Known as holding period return, it is the total return an investor receives from holding an asset or portfolio of assets over a period of time. It is important to understand that differences in holding period return will often vary among investors, as they are subject to differences in taxes, purchase prices, sale prices and taxes, capital gains, and other factors.

In conclusion, the holding period of an investment is important on many levels. It has direct implications for tax liability and it also plays a role in investor returns. It is important to remember that each investor’s holding period is unique, meaning they all may experience different returns and tax consequences. As such, investors should take into thought the tax implications and potential returns before deciding to buy and hold any security.