Long Term vs Short Term Investment: Which is Better? | Espresso

Short Term Investment vs Long Term Investment

We live in an uncertain time, and you must invest wisely. You may have a steady income, but you need to invest your money efficiently to meet your goals.

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Unforeseen expenses may arise at any point in time. For example, your car may break down suddenly tomorrow, you or someone from your family might need immediate hospitalisation due to a sudden health condition or accident. Don’t take it otherwise, but mishaps like these do come unannounced, and hence, as responsible individuals, it is our goal to have proper financial support during times like these!

Hence, why not go for regular investments? But you may not be sure whether to go for a short-term investment or a long-term investment. Hence, in this blog, we will discuss the difference between short-term and long-term investments. So, let’s dig into the details below.

Short-Term Investment vs Long-Term Investment

According to the market experts, it’s prudent to do ample research before investing. What is suitable for you might not work for a friend of yours. This is because your investment objectives will be different from your friend’s objectives. Hence, it is better to consider your overall financial goals to determine whether you should opt for a long-term investment or a short-term investment.

  • Long-Term Investment

These are the kind of investments that will offer you higher returns in the future that typically spans above five years. These market-linked investments come with risks and hence, aren’t suitable for first-time investors or those whose risk-bearing capacity is less. However, if you are a pro in investing in aggressive market tools, you may consider investing in the following options listed below –

  • Mutual Funds are long-term investment instruments where you can expect higher returns if you invest properly. There are several small and mid-cap equity funds where you can invest to meet your goals. Mutual Funds are long-term investment instruments where you can expect higher returns. Hence, invest diligently.
  • Stocks – These are the physical representation of an organisation’s total value. For example, when a private company offers an IPO (Initial Public Offering) in the stock market, investors can invest in its stocks once the company's shares start to trade in the different stock exchanges.

Stock investments offer higher returns as compared to other investment avenues. But you need to take expert help in doing so. Essentially, a stockbroker or a broking firm can help you trade easily in stocks.

  • Short-Term Investment

Short-term investments are the ones where you can invest for a short period, generally up to three years. These are highly liquid investment instruments with the little market risk involved. So, if you have just started investing or thinking about investing your hard-earned money for a better and financially secure future, you may think of starting with investing in one of the below-mentioned short-term investment instruments –

  • Gilt Funds – You can only invest in government securities with these funds. These are also considered the safest investment funds due to their zero-credit risk.
  • Bank Fixed Deposits - The fixed deposit tenure can range between 14 days to 10 years. Also, these can be renewed upon maturity. However, for fixed deposits, liquidity can be an issue as a few banks won’t allow premature withdrawals.
  • Large-cap Mutual Funds – When you invest in these funds, your money will be invested in businesses with a large market capitalisation and offer stable returns after being invested in a short duration of one to three years. Again, as these investments are made in well-established businesses, these funds are low-risk investment instruments.

Long-term vs Short-term Investment – Which One is Better?

One cannot pick one over the other as there’s no clear winner between the two. However, short-term investments are meant for different financial goals compared to long-term ones. So, based on your risk appetite return expectations, you can select between the two. Also, if you just wish to preserve your money and are happy enough with moderate timely returns, short-term investments could be the right choice for you. On the other hand, long-term investments instruments are advisable for you for higher returns.

Conclusion

Online trading is now easier than ever with the advancement in technology. It’s quick, hassle-free, and convenient for investors to trade in different investment instruments sitting at the comfort of their home/office. However, before choosing any particular investment tool, it’s always better to learn more about your financial goals to make an informed choice.

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Frequently Asked Questions

There some major benefits of short term investment. One of the main benefits is that they are highly liquid so you can sell these investments and get money whenever you are in need. Moreover, short term investment tends to be less riskier than long term investment.

The safety of the long term investments depends on the type of investment. For investments like stocks, the risk tends to be higher than other assets. But, these also provide a chance of earning better returns in the long run which can lead to a higher purchasing power.

When deciding between long-term and short-term investment options, you should be very clear about your purpose of investment or your reason behind opting for such an investment scheme. You also need to consider how much money you will be expecting out of your investment. Based on all of this, you will know better which type of investment will suit you.