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What Are Short-term And Long-term Investments?

By Author: Shashank Pawar
Total Articles: 33

You must have heard about short term and long-term investing if you have been a mutual fund investor. But have you ever wondered what is considered as short-term or long-term investment in financial goal planning and investment making process? A time frame of 0-3 years is considered as short term while anything beyond 5 years is considered as long-term and any investment horizon in between is considered as medium term i.e an investment horizon of 3-5 years is called medium term.

When you seek advise on financial planning for your future you must have encountered two important questions, namely, what’s your objective (goal) and what’s your investment horizon? These two questions are important because they help the mutual fund advisors recommend the right mutual fund schemes for you. Every mutual fund scheme invests in a basket of securities that are most suitable for its stated investment objective whether it is capital appreciation, wealth creation, income generation or liquidity. The kind of securities a fund invests in makes it suitable for a kind of investment horizon. For instance, a fund focused on wealth creation will invest in securities that may be very volatile in the short term but have a potential to provide good returns over the long-term.

Another fund that is focused on offering regular income and liquidity may invest in very short-term and low risk securities that are less volatile in the near term. Thus, choosing the best long-term investment requires you to look at financial products that are designed to produce good return in the long-run i.e they should be capable of producing good returns when you stay invested in them for at least 5 years or more. Similarly choosing short-term investment plans require you to evaluate all financial products ranging from savings deposits, fixed deposits, NSCs to debt mutual funds and bonds or money market instruments issued by banks, PSUs, corporates and the Govt.

In case of mutual fund investing, debt funds are most suitable for short-term investments while hybrid funds that invest in a mix of debt and equity are more suitable for the medium term. Equity mutual funds are best suited for long-term goals like financing child’s college education or planning for your retirement. The reason you must take the investment horizon of a fund into consideration before investing in it for a specific goal is because mutual fund investments carry market risk and you don’t want to end up with the wrong fund for the wrong purpose. Depending on the time horizon, their returns may be volatile in the short or medium term for some category like equity where as debt funds that are more stable in the short-term may not give you enough return for a long-term goal. Hence the investment objective and time horizon are equally important in choosing the right fund for your goals.

You can read more about mutual funds best short term and long-term investing plan, their types, the kind of risk involved and much more on Mutual Funds Sahi Hai, the one-stop solution for all your mutual fund queries.

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