Long Term Investment vs Short Term Investment
In financial markets, there is no alternative for quick wealth creation. Investing is the long-drawn process, where patience, commitment and close attention are required. Your capital can be invested in the short term and long term. Both forms of investment have their distinct merits and demerits.
Market experts suggest doing appropriate research before making investments. What’s suitable for another investor might not be in sync with your financial objectives. So, you must take into account your overall goals along with the risks that you are willing to take.
What is a Short Term Investment?
Short-term investments are traded for a short period; 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 and is a high liquidity instrument.
- 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 to six months and 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 a 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 accounts, 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 and 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 higher returns thus allowing you to invest in aggressive market instruments. These investment options are of the following types:
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 which the shares of the company are traded in stock exchanges. Investment in stocks earns the highest returns from the market of up to 16%, the highest amongst all investment avenues. In the digital age, it has become easy to trade in stocks.
However, considerable market expertise is required before investing in shares. You must understand the market movements so that you know when to purchase, and when to sell the stocks. Investing in stocks and securities requires 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 features like brokerage cashback, free AMC period for Demat Account and zero Demat Account opening fees. 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 as both have their 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 have a greater risk appetite, wanting 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 higher returns, then invest in long term investment avenues.
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, ensure that the financial company offers the best stock and scheme recommendations for the highest profits.