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 2022:
|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 2022:
|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.|