Short Term vs Long Term Investment – Which is Better?

In financial markets, there is no alternative for quick wealth creation. In fact, it is often a long drawn process, where you have to invest with patience, commitment and close attention. If you want to invest your hard-earned money, then you face two options: short term investment and long term investment. Both forms of investment have their distinct merits and demerits.

Market experts suggest doing appropriate research before making investments in either form. What’s suitable for another investor might not be in sync with your overall investment aims and objectives. So you must take into account your overall financial goals along with the risks that you are willing to take. Read on to understand the various facets of long term and short term investments.

What is a Short Term Investment?

Short-term investments are those instruments that are traded for a short period of time; typically up to three years. These are high liquidity instruments, generally involving lesser market risks. The following types of financial instruments fall under the category of short-term investments:

  • Treasury bills: These bills can be redeemed within 91 days. If you want a high liquidity instrument, then you can choose Treasury bills.
  • Gilt Funds: These funds invest only in government securities. Owing to zero credit risk, these are safe investment funds.
  • Ultra short term debt funds: The maturity period ranges between three and six months. These funds provide comparatively higher returns.
  • Low duration debt funds: The maturity period ranges between six and 12 months. These funds invest in debt and money market instruments.
  • Money market funds: These funds invest in money market instruments and have a redemption period of up to one year.
  • Bank fixed deposits: The tenure can range from 14 days to 10 years. These deposits can be renewed on maturity. Liquidity can be a concern here as some banks don’t allow premature withdrawals.
  • Company fixed deposits: These can have tenure of more than one year.
  • Post office time deposits: These have tenures ranging from one to five years.
  • Recurring deposits: You can open an RD for a duration as low as six months.
  • Sweep-in-Fixed Deposits: As against low returns on savings account, these offer comparatively higher returns, with a minimum tenure of around 12 months.
  • Large-cap mutual funds: These funds invest your money in companies with a large market capitalization. These funds provide stable returns after being invested in a short duration of between one and three years. As the investments are made in large, well-established companies, these funds are low-risk instruments.

What is a Long Term Investment?

Long term investments are investments that offer higher returns after several years; typically five years or more. These involve more market risks, and generally provide higher returns. The inherent nature of these investments allows you to invest in aggressive market instruments. These investment options are of the following types:

  • Stocks
    • Stocks are the physical representation of a part of a company’s value. A company offers Initial Public Offering (IPO) to investors to raise funds for its businesses. After the IPO, the shares of the company are traded in stock exchanges.
    • Investment in stocks is the best way to earn the highest returns from the market. The long term returns from stock investments can range up to 16%, the highest amongst all investment avenues. In the digital age, it has become easy to trade in stocks.
    • You must, however, have considerable market expertise before investing in shares. You must understand the market movements, so that you know when to purchase, and when to sell the stocks.
    • If you want to invest in stocks and securities, remember to choose a trusted financial partner, who can provide hassle-free features to open an online Demat Account and a trading account. You should also look for unbeatable features like brokerage cashback, free AMC period for Demat Account and zero Demat Account opening fees. Alongside, a single Demat Account for investing in various options, you should also ensure that you receive the best market reports for maximum profit booking.
  • Equity mutual funds:This is another long term investment avenue for receiving higher returns. You can invest in small and mid-cap equity mutual funds for the long term to achieve greater financial goals.

Which is Better – Short Term or Long Term Investment?

  • There is no clear winner here. Both forms of investment have their own pros and cons. Short term investment allows you to achieve your financial goals within a short span, with a lower risk. On the other hand, if you are an investor with a greater risk appetite, and want higher returns, you can select long term investment avenues.
  • If you want to preserve your capital, and are happy with moderate returns then choose short term investments. But, if your goal is capital appreciation, then invest in long term investment avenues.

Conclusion

Thus, online trading has made share trading easier, convenient, quick and hassle-free. You should remember to open a trading account only from a trusted financial partner, who can provide a single platform for different investment options. Besides, you must ensure that the financial company offers the best stock and scheme recommendations to enable maximum profit booking.

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