What is the first question that comes into anybody’s mind when they have to invest their hard-earned money? It is what will be their return on investment. The first question which strikes them is for how much time they need to remain invested in order to receive the expected returns. When we speak of investments, the lure of a quick return is always imminent. However, wealth creation is all about systematic long-term planning, and patience.
That being said, either form of investment has its supporters and detractors. The fact remains that there is no substitute for the knowledge of the market. The tenure of investment is eventually related to the investment goals and expected returns. Let us understand more on investment tenure: short-term and long-term investments.
What are short-term Investment options?
Short-term investments are ideally traded over short durations, typically for a period of up to four years. Short-term investment instruments have liquidity and are associated with low market risks. Let us now consider some examples of short-term investment instruments.
- Treasury bills – Treasury bills are highly liquid investment assets and can be redeemed within a period of ninety-one days.
- Gilt Funds – These are among the safest investment assets in the market and carry absolutely no credit risks, as they invest only in government securities.
- Ultra short-term debt funds: These investment funds have a higher rate of return compared to other short-term investment assets. Their maturity period can be anywhere between three to six months.
- Low duration debt funds: These investment funds deal in debt and money market assets, with a maturity period anywhere between six months to one year.
- Money market funds: Investing in money market assets, these investment funds can have a maturity period of up to a year.
- Fixed deposits – These can be of various types, with different maturity tenure, and liquidity.
- Post office time deposits: These have tenures ranging from one to five years.
- Recurring deposits: These come with a minimum of six months maturity tenure.
- Large-cap mutual funds: These schemes put your money in large-cap investment funds and/or companies, which have relatively stable returns over short tenures.
What are long-term investment options?
These investment schemes have higher expected returns, and also require longer tenure to remain invested. Any asset class that requires more than five years of investment tenure can be regarded as a long-term investment option. The higher expected returns are also associated with higher risk. Let us now consider some examples of long-term investment options.
Stocks represent the market value of the company. They are traded in the stock market and provide partial ownership of the company to the investor.
Stocks offer among the highest returns on investment, on the back of higher risk. At the same time they are volatile assets that require exhaustive knowledge of the market, and long tenures, for them to generate wealth over time.
Equity Mutual Funds
These are pooled investment funds that put your money in equities. Investing in small and mid-cap investment funds over long tenures can offer high returns.
These are investment portfolios that are risk-adjusted, curated and managed by top SEBI registered financial experts in India. WealthBaskets consist of a combination of stocks and ETFs that are selected as per a theme, strategy, or market segment. When compared to other long-term investment options, WealthBaskets are more reliable in earning risk adjusted returns over a time period.
If you were to choose between long-term and short-term investments.
There are no absolutes in this discussion. What suits a person or a particular situation may vary from time to time. The factors which determine the desirability of an investment tenure include the financial goals of the investor, along with their risk to returns objective.
Short-term investments help you achieve your near term financial goals. Long-term investments, on the other hand, are used to fulfil larger goals and objectives. Risk may vary based on type of instrument and appetite of an investor.