Is mutual fund good for long term or short term?
There are funds for the long term and short term. For tax purposes, short term and long term are defined. In mutual funds, investing for the short term is synonymous with debt funds, and the long term implies equities. Investment advisors suggest investing for the long term funds.
When you invest for the short term, you'll need access to your money sooner, which means it's best to choose less risky investments. Conversely, when investing for the long term, your money has more time to recover from losses and to take advantage of growth in the stock market.
Stock mutual funds, especially growth stock funds and aggressive growth stock funds are suitable for most long-term investors. Many long-term investors also like to use index funds for their low-cost and their tendency to average good returns over long periods, such as 10 years or more.
There is no clear winner here as both have their pros and cons. Short term investment allows you to achieve your financial goals within a short span, with a lower risk. On the other hand, if you have a greater risk appetite, wanting higher returns, you can select long term investment avenues.
The advantage of long-term investing is found in the relationship between volatility and time. Investments held for longer periods tend to exhibit lower volatility than those held for shorter periods. The longer you invest, the more likely you will be able to weather low market periods.
Short-term investments can be great investments for individual investors and corporations who are looking for both liquid and stable options to grow their wealth. The options are plenty: from CDs to bonds and high-yield savings accounts, it's only up to each investor to do their homework.
Long-term investment options usually offer higher returns. However, the best investment options include Stocks and Mutual funds, Real Estate, National Pension System, and Public Provident Funds.
Pros of Long-Term Investing
Compounding helps generate interest on the interest earned, which helps in creating a bigger corpus. Also, stocks and equity mutual funds are volatile in the short-term and to maximise gains, you need to hold them for a longer period.
Essentially, short term investors can push stock prices up and down based on either mania or gloom in the short-term news flow. Investors are “voting” through their trading. They purchase stock when they believe there are good times ahead. They sell when they are less optimistic.
Mutual funds are great for long term financial goals and should be done for a minimum time frame of five years. Investors should not worry about short-term volatility. If your investment is giving negative returns in the near term don't panic, instead keep investing as you can accumulate more units at the same price.
Why mutual funds are the best investment?
Mutual funds help investors diversify unsystematic risks by investing in a diversified portfolio of stocks across different sectors. While individual stocks have both unsystematic and systematic risks, mutual funds are only subject to systematic risk or market risk.
If you are actually looking at equity funds to help you achieve your long term goals then you at least need to give yourself a holding period of 8-10 years. For debt funds, the outlook on rates should be your key driver for holding period.. Unlike equity funds, the debt funds do not really depend on long term holding.
- Urgent Need for “Quick Cash” ...
- Having Difficulty in Cash Flow Management. ...
- If You are a Young Business, Operating for Less than 1 Year. ...
- Need to Purchase Equipment or Inventory. ...
- Cash Shortage during Holiday Seasons. ...
- Taking on More Clients. ...
- Planning for Business Expansion.
The advantage of short-term financing is that you get a relatively small amount of money right away, and you pay it back quickly. The total interest repaid will typically be much less than on a larger, long-term loan that has more time for interest to build.
When you need the money | Investment options | Potential interest rate |
---|---|---|
Two to three years | Treasurys and bond funds, CDs | 2.5+ percent |
Three to five years (or more) | CDs, bonds and bond funds, and even stocks for longer periods | 3.0+ percent (or much more if you're investing in stocks) |
Mutual funds are less risky than individual stocks due to the funds' diversification. Diversifying your assets is a key tactic for investors who want to limit their risk. However, limiting your risk may limit the returns you'll ultimately receive from your investment.
Mutual funds are one of the most popular investment choices in the U.S. Advantages for investors include advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
Diversifies Capital Portfolio – Long-term financing provides greater flexibility and resources to fund various capital needs, and reduces dependence on any one capital source. It also enables companies to spread out their debt maturities.
Short-term investments provide faster returns than long-term investments. Faster results mean tangible results. You can enjoy the results immediately after only a few weeks or months of investment.
- Direct Equity – Stocks. ...
- Equity Mutual Funds. ...
- Debt Mutual Funds or Bond Funds. ...
- National Pension Scheme (NPS) ...
- Public Provident Fund (PPF) ...
- Bank Fixed Deposit. ...
- Senior Citizens' Saving Scheme (SCSS) ...
- Real Estate Investment.
What is the best way to invest money?
- Stock ETFs and mutual funds. ...
- Low-cost index funds. ...
- Real estate, or REITs. ...
- Money market funds. ...
- Online savings accounts. ...
- Treasury Bills. ...
- Certificates of Deposit.
- High-yield savings accounts.
- Series I savings bonds.
- Short-term certificates of deposit.
- Money market funds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
- Saving Account.
- Liquid Funds.
- Short-Term & Ultra Short-Term Funds.
- Equity Linked Saving Schemes (ELSS)
- Fixed Maturity Plans.
- Treasury Bills.
- Gold.
Theoretically doing a Mutual fund SIP for the long-term will work for investors. But for practical reasons we need to commit a Mutual Fund SIP for short term. That is we need to break that long term into many 6 months or 1 year periods and commit your Mutual Fund SIP for the first 6 months or 1 year.
Know Your Time Horizon
Typically, long-term investing means five years or more, but there's no firm definition. By understanding when you need the funds you're investing, you will have a better sense of appropriate investments to choose and how much risk you should take on.
Fund Name | Category | 3 Year Returns |
---|---|---|
Axis Bluechip Fund | Large-Cap Equity | 23.50% |
Mirae Asset Large Cap Fund | Large-Cap Equity | 22.30% |
Parag Parikh Flexi Cap fund | Diversified | 31.40% |
Invesco India Growth Opportunities Fund | Diversified | 19.9% |
...
Returns for UTI Short Term Income Fund.