Mutual Funds for Long-Term and Short-Term Investments

Long-term investments or short-term? Most of the investors get stuck here while investing in Mutual Funds. The answer to this question depends on your financial goals. Your financial goals play one of the most crucial roles in deciding which Mutual Fund is best-suited for you. But the good news is - be it long term or short term, there is a Mutual Fund for every time horizon, for every goal.

Firstly, let’s get to the basics. The most common question with respect to Mutual Funds is - How to invest in Mutual Funds? There are many ways to invest in Mutual Funds. You can invest online as well as offline with a direct plan or a regular plan. Investing in a Direct Plan means investing directly in a fund. In this case, instead of buying from the distributors, you buy directly from the AMCs. Hence, investing in a direct plan implies you taking responsibility of creating a financial plan, choosing funds that suit your goals the best, monitoring the portfolio regularly to rebalance it, if needed. On the other hand, in a regular plan, the investments are made through a Mutual Fund broker, distributor or advisor. This plan also involves distributor commission charges. Hence, one must choose the mode of investment after analysing certain factors such as how well-versed one is on the subject, financial budget, etc.

An investor needs to plan out a time horizon for his/her Mutual Fund investment. There are options for both long term and short term investments. Investments with a period of less than 3 years are categorized as short term investments. For a very short-term i.e. less than 1 year, one can look at liquid funds as an option. For a short term i.e. a period of 1 to 3 years, one can consider Short Term Bond Funds as an option. Debt funds have a short average maturity since it invests your money in a basket of bonds and other debt fund securities. These are some of the best options to explore for those who are aiming for good returns through short term investments.

If you want to invest with a short-term perspective, it is highly recommended to avoid investing in equity funds owing to its volatility. This volatility can only be managed if one stays invested for a long term. Since equity funds are also illiquid in nature, especially the mid-cap and small-cap stocks, one must only invest in them with a long-term perspective. Hence, equity funds are a good option for a long term investment i.e. for 3 years and more. Long term investment in Mutual Funds demand patience. Only with patience one can reap the benefits of equity funds since they have a great potential and the ability to provide high returns.

Therefore, one must decide the time horizon for their Mutual Fund investment as per their requirement, budget, income, savings and financial goal. Both short term and long term investment can give good results, if planned properly.

I'm 32 Years Old, Marketing Manager. I provides investment guidance in Mutual Funds & other investment options.