InvestorQ : Does payback period matter when investing in equities?
Juvina Maggie made post

Does payback period matter when investing in equities?

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Shreya Karn answered.
3 years ago
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We normally equate payback period with debt or projects where you need to calculate how many years it takes to get your money back. But can we also apply the same concept of payback period to equities? That is not entirely difficult. What do we understand by a payback period? Obviously, it is the time in which you recover your principal. You must have heard of this concept in large projects but how is this idea relevant when it comes to equities. First let us understand the concept of payback period. Let us assume that you have invested rs.10 lakh in an equity share and the yield on the stock has been around 10% annualized. That means your payback period just to recover the principal is 10 years. That is obviously not too exciting. When you look at payback period, it gives you a good idea of how long is long term in that equity.

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