After reading the title, you must be thinking that definitely, I am going to talk about the time horizons, for any individual’s investment plan, but to your surprise, terms like Long-Term Investment and Short-Term Investment, meanings are not only confined to time horizon, but their meaning extend more than this. 

Well, before understanding their different meanings, first let’s know about the time horizons related to these. Short term investment in a mutual fund, is carried for 1 to 3 years, whereas long-term investment is carried for more than five years and can last up to 20 or 25 years, or more than this. 

Short-term Investments:

Short-Term Investments are typically a kind of investment, which can easily be converted into cash, within a short duration, this short duration can be months, or some years (maximum 5 years). They are also referred to as temporary investments. Some examples of short-term investments are corporate bond funds, debt funds, money market accounts, and many more.

Long-Term investments: 

Long-Term Investments is referred to the assets of a company, representing the company’s investment, including stocks, bonds, cash, and real estate. These assets are held by a company for more than a year or you can say for years. Some examples of long-term investments are Stocks, Long-term bonds, Mutual Funds, ETFs, Real Estate, and many more.

Difference between both: 

The biggest difference between Short-Term investment and Long-Term investment is, Short-term investments are likely to be sold under a short period, on the contrast, long-term investments can be held, for years and cannot be sold under short duration. In some situations, it happens that long-term investments cannot be sold ever.

Which investment horizon to be chosen and why?

Now, you must be thinking about how to choose long-term investment or short-term investment? Well, you don’t need to worry, you don’t have to choose this, in fact on your behalf, your investment objective decides, whether to hold a long-term investment or short-term investment.

Yes, you read right! The selection of time horizon and type of mutual fund investment is determined by your investment objective.

For example, consider you have to go to your office from your residence, what will you take to go to the office, an auto or a plane? Obviously, an auto. Suppose you have to go to Delhi from Patna, in that case, either you will choose a train or a plane, and not an auto! A similar situation is in choosing the time horizon for your investment. Some people invest to secure their future after retirement, or to construct their house. These types of objectives require long-term investment to yield good returns. On the other hand, some people invest to earn a good amount in a short duration, these types of objectives require short-term investment, to earn the required amount for investor’s investment goals.

There is also a second parameter on the basis of which, investment type is chosen, and that is investors' risk appetite. Many people are there who often get afraid when their fund starts underperforming, and in haste, they redeem it and end with earning a loss. These people are often advised to opt for short-term investment plans. If your risk appetite is high, and you can clam yourself, in the ups and downs situation of the market, then friend long-term investment is made for you!

Well, both type of investment has their own significances, but if you will ask any professional financial manager, he/ she would advise, going with long-term investment, as it reduces the risk from your portfolio, and increases the returns on your investment. The longer you invest, the longer your investment is compounded annually, and the more returns are generated on your investment.

If you are willing to earn more and build a strong base for your wealth creation, don’t think too much, just invest in mutual funds with long term investment plan, and enjoy your returns.

As of now, you know what are short term and long-term investment plan, so, analyze your investment goal, and select your plan, for your mutual fund investment.

Happy investing!

 (Mutual Fund investments are subject to market risk. Kindly read all the related documents carefully before investing. Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns)