Short Term and Long Term Investments
The stock market serves as a one stop destination for every investor’s need. The flexibility it offers in terms of investment avenues is extremely huge. With age and time, an investor’s financial objectives and risk appetite changes. Every investor has different set of goals in life and hence to achieve those, specific investment assets have to be chosen. You should have a financial plan that consists of clear cut goals and time horizon within which those have to be achieved. Some goals such as buying a home or retirement planning have long term duration associated with them. You may need high liquidity on a short term basis as well. As the goals vary, the type of investment assets also varies. Segregate your financial goals on the basis of time horizon and then invest accordingly in short term investment tools and long term investment tools. You can take the help of financial planners who would help you with the relevant investment strategies. Based on your goals, you should know the difference between short term and long term investments. This article will give you a clear understanding about long term investment vs short term investment.
Short term investments and types: These are usually low risk and high liquid instruments. Certificates of Deposit, Treasury Bills, Commercial Paper, Gilt funds, etc. fall under this category. These are preferred by investors who are more interested in capital preservation and moderate returns within a short term.
The maturity period of these bills are less than 91 days. Investors who want high liquidity prefer Treasury bills.
These funds invest only in government securities and are safe instruments as they have no credit risk.
Ultra short term Debt Funds:
These offer better returns compared to other liquid funds and the maturity period ranges between 3 and 6 months.
Large Cap Mutual Funds:
Here, a large proportion of your money is invested in companies with huge market capitalization. These give good returns within a short duration say 1 to 3 years. Large cap mutual funds offer stable returns and are low risk instruments as the investments are made in well established companies.
Long term investment and types: These instruments are usually considered to be associated with high risk and also provide high returns. Those investors who need capital appreciation prefer these avenues.
Investing in stocks has proved to be one of the best ways to get good returns. We have come across investors who bought a share at a very low price 15 or 20 years ago, the value of which has increased tremendously making them millionaires. A thorough research about the company is needed before buying its shares. The growth prospects and future potential has to be understood as you will be putting your hard earned money in the company for a long term. As the stock prices tend to move up and down, careful approach and guidance is needed on when to hold a stock, when to sell and when to buy. A constant monitoring of the market and the company in particular is needed so as to take the correct investment decision.
Equity Mutual Funds:
Investors who have a high risk appetite can invest in equity mutual funds especially in mid cap and small cap funds that are capable of providing high returns.
Short term instruments help you to achieve your goals in a short span and also with low risk. Whereas long term instruments help you achieve greater financial goals provided you are willing to take high risk.
Hope this article has cleared all your doubts about long term investment vs short term investment. Chalk out a financial plan, open your demat and trading account with a SEBI registered broking and start investing today!