Difference Between Long-term Investments and Short-term Investments

There are different types of mutual fund investments available today. There are short-term investments and long-term investments. There are, in fact, as many investment strategies as there are investors. Having to choose between this wide range of options can sometimes be daunting. Choosing between long-term investments and short-term investments is basically like choosing between how fast you want your investment to grow and how much risk you are willing to take.

Long-term investments are those investments which you plan to hold for more than one year. In most cases, you aspire to hold them for several years. On the other hand, you generally hold short-term investments for one year or less. Here are some of the major distinctions between short-term investments and long-term investments:

The intensity of safety and risk and the comparative rates of growth is what distinguishes short-term investments from long-term investments. Short-term investments last for a short while and give you a remarkable return in a short time frame. On the other hand, long-term investments last for several years with a slow but steady increase in returns that add up to deliver a significant profit at the end of the investment term.

Short-term investments carry a little more risk compared to their long-term counterparts. The rate of fluctuation is comparatively high in case of short-term investment. While there is a good chance of making more money from short-term investments, there is also a chance of losing money with short-term investments.

On the contrary, long-term investments can offer you stability and much lower risk while offering higher returns in the long run. Long-term investments are preferred as an investment option when the investor has a lot of time in hand, like in the case of a retirement fund, which grows over the years and matures just at the time when you need them.

With most of the long-term investments, you have less control over your money until the investment matures. Additionally, early withdrawals or selling of bonds and stocks are subjected to fines and penalties in long-term investments.

Therefore, before making an investment, it is sensible to compare the pros and cons of both short-term and long-term investments and then choose the one that best fits your current financial needs. This can save you from having to change your plans midway or sell it without much profit. If you are willing to take short-term investment as your major investment strategy, one good option is to choose SIP mutual fund plan. Click here to calculate SIP fund returns and compare SIP mutual fund plans.

As a beginner in the field of investment, you might need a mix of long-term and short-term investments. By learning the differences between these two types of investments, you will have a good idea of what to expect from your investments. This can help you make the right choices for your future investments.

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