A Harvard Business study revealed that 14% of the population who had financial goals were 10 times more successful than those without goals.
Goals are dreams but with a timeline. Your financial goals can be broadly divided into short term goals and long term goals.
To achieve both short term and long term goals, merely earning money is not enough. You also need to plan and make appropriate short term and long term investments so that your money works equally hard for you.
Before investing, it is essential to lay out a roadmap for your goals so that you can effectively invest in short term and long term investment options in order to achieve your financial goals.
In this article we are going to cover:
- What is short term investment?
- What is long term investment?
- What is the difference between short term investments and long term investment?
- Which is the best long term investment option for you?
- Which is the best short term investment option for you?
What is Short term investment?
Short term investments fulfil short term financial goals like planning a holiday, buying a vehicle, etc. The duration of short term investment varies between 1 to 3 years.
For example, Miss Arya is a 25-year-old working woman with a monthly salary of Rs. 27,000. She wants to buy a scooty for her travelling convenience which costs around Rs. 60,000. So Miss Arya starts a recurring deposit of Rs. 5000 per month for a year. This is an example of short term investment.
What is Long term investment?
Long term investments fulfil major financial goals like buying a home, planning for retirement, etc. Long term investments have a duration of 3-10+ years.
For example, Mr Shakti plans to buy a home after 10 years in Mumbai with 30% down payment. So he starts investing 10,000 per month in a large-cap mutual fund via a monthly SIP.
What is the difference between short term and long term investments?
|Parameter||Short term investment||Long term investment|
|Goal||Short term investments are made to fulfil near term financial goals.||Long term investments are made with the view of building major resources for the long term.|
|Risk||The risk of short term investments vary as per the selected investment option.
The stock market is volatile hence short term investments may prove risky.
|Long term investments provide ample time for your portfolio to grow, reducing the overall risk.|
Which is the best short term investment option for you?
Short term investments are focused to meet short term financial goals and provide considerable returns in a short span of 1 to 3 years.
Here are the best short term investment options for you to invest in 2021:
|Investment options||Yearly returns||Liquidity||Holding Period||Features|
|Recurring deposit||5% – 6%||The minimum lock-in period of 1 month||6 months to 10 years||One of the most popular short term investment plans with low risk.|
|Debt instrument||7% – 8%||Highly liquid and provides moderate returns.||91 days to 12 months||Debt instruments are best for risk-averse investors.|
|Bank fixed deposit||6 – 7%||Premature withdrawal is allowed with a penalty||7 days to 10 years.||Bank FD is one of the safest short term investments.|
|Large-cap mutual funds||8- 12%||Highly liquid with high returns.||3 to 5 years.||Large-cap mutual funds invest in companies with high market capitalisation. This is a high risk short term investment option.|
Which is the best long term investment option for you?
Long term investments are generally held for 3+years and efficiently help in compounding your wealth.
Here are the best long term investment options for you to invest in 2021:
|Investment options||Yearly returns||Liquidity||Tenure||Features|
|Stocks||15% – 18%||Highly liquid||5+years||Long term investment in stocks can be done in a mix of large-cap, mid-cap and small-cap stocks as per your risk profile.|
|Equity mutual funds||12% – 15%||Highly liquid||5+years||Equity mutual funds are most suitable long term investment for individuals with moderate – high risk.|
|Public provident fund||7% – 8%||Lock-in period of 15 years.||15 years||One of the safest long term investments with moderate risk appetite.|
|Bonds||7% – 9%||Moderately liquid||3 to 10 years||Bonds are less risky than stocks.|
|Gold||Depends on the volatility of prices.||Highly liquid||5+years||Gold is considered a safe investment as it acts as a hedge against inflation.|
|Real estate||7% – 9%||Highly illiquid||Longer holding period is recommended||The value of the property is dependent on the location.|
Our needs are never-ending as we want to live a comfortable lifestyle. To achieve a comfortable lifestyle, you should regularly and diligently invest in the short term and long term investments as per your financial goals and create wealth for yourself and your loved ones.
So, take the first step towards achieving financial freedom by opening a Demat account with Samco and get the benefit of a 3-in-1 Demat – Trading – Mutual Fund investing account and 100% brokerage cashback on all trades placed from the StockNote app for the first month!