Most of the time when we are discussing with clients, their first question is ” Where should I invest my money to get the best return”. If you are a regular reader of our articles, then even you will be able to answer this question that Returns are not the goals in Investment. But this time around, we will explain a bit how to invest for short term goals and how to invest for long term goals.
What is Long term & Short term
Before, we start on this topic, let us explain what short term is and what long term is. Because many investors don’t really understand this concept and to many, even 1 years seems to be long term! Short term investment is anywhere 1 year to 3 year. Period less then 1 year would come under Ultra Short Term. Investment horizon of more than 5 years should ideally fall under Long Term investments. Now a period between 3 to 5 years is combination of long term and short term and we would classify as Medium Term Investments.
We will try to understand it by analogy
Just imagine a situation where you have to go to nearby grocery shop. Would you take Airplane for this purpose. Sound funny! Let us change the example, you have to go to Canada for a vacation. Would you go walking or take cycle for this purpose. Sound irritating!
Investment Vehicle
What we want to convey is that you should choose your INVESTMENT VEHICLE depending on how far you have to reach. We use high speed vehicle only when our target is far away; similarly high return investment like equity should be used only for long term goals. On the contrary, for short distance, we use vehicle with slow speed and same thing applies in investment. For short term goals, we need to use low vehicle like Debt.
Ownership VS lending in investments
When we plan for long term investment, the speed on the return on investment should be high. Not just because you have to make more money but you have to beat inflation in long run. You have to make sure that the returns on investments are greater than the rate of inflation. This can happen only when you invest your money in Ownership Assets. Ownership assets have short term fluctuations but in long haul, they beat inflation and create wealth. Long term Financial investment which beat inflation is Equity and it is equity which creates wealth in long term. When we talk of equity, we would like to clarify that we don’t advocate people to invest in equity directly unless they have in depth knowledge of markets. For people who are not specialist, it is better we leave to professionals and invest in Equity Mutual Funds.
Also Read
KISS strategy in Financial Products: Keep it Simple Stupid
“Timing” or “Time in” Equity Markets
When we want to plan for short term investment, the need is to preserve the wealth and not to create the wealth . Do understand the difference between income and wealth. Since the tenure is short, one cannot take any risk of fluctuation and hence we should be in lending assets. Lending assets in financial term is called Debt. Debt is an instrument where get returns in the form of interest. Typically, people relate the word interest with FDs, Post Office schemes etc. but there is much larger universe of debt. In fact, from the point of view of Income Tax, it is better that returns are taken in the form of dividend and capital gains rather than simple interest. The option available in Debt instruments are huge but typically investor has limited knowledge of it. Debt instruments are FDs, Bonds, debt based Mutual Fund Scheme such as Short Term Funds, Gilt Funds, Liquid Funds, floater etc. Depending upon the liquidity needs and taxation, the product should be taken debt category. Read FD VS FMP
As legendary investor Warren Buffett quoted “Investor has to do very little things right as long as he avoid Big Mistakes.”
Investor make mistake of choosing wrong vehicle for their investment. Practically, Equity should be for Long term and Debt for short term, but investor do the the opposite, Equity for short term and debt for long.
Guess which is the world’s most expensive hobby…… “Equity Trading”
Think of your own portfolio and analyze.
Love to hear your comments.
Subscribe for TFL Weekly Guide
Do you believe in - An apple a day keeps the doctor away?
Similarly, TFL Guide is your weekly apple, keeping you financially fit.
Subscribe now and get Basics of Financial Planning E-Course FREE.
{ 86 comments… read them below or add one }
It is really an eye opening article everybody should feel the difference and think about the investments
@ Ashwani
If you like it share it with your friends “Gyan bantane se badhta hai”
sir it is fabulous,,nd great knowledge ,,u r spreading!!thank u..kindly also mail us how to enter in ipo
Hi Ruplai,
Thanks for appreciating our effort.
Regarding IPOs – this is not the best way to invest in equities, you should invest in mutual funds through sip.
Good to see your regular mails on invester education and right product pitching.
@ Gaurav
Hope its’ useful.
Hi Hemant,
I have 4 lac in cash and i want to invest in short term(6-12 mnths) financial products which gives decent returns.
Tell me which will be app. product to invest in ?.
I have shortlisted gold,fd,pomis,eq MF ..I am not sure about returns in FMP.
Hi Baranidharan,
As your horizon is short term – your focus should be on safety of money rather than growth. So Gold & Equity MF can’t be your choice. Post Office MIS doesn’t make any logic due to it’s time horizon.
Selection between FD & FMP will depend on your tax slab:
http://www.tflindia.in/2010/03/fixed-deposit-vs-fixed-maturity-plan.html
Good sip for short term investment
Hi Rohit
I am not able to understand your horizon but if it’s less than 1 year – go for Liquid Funds.
I had one small doubt.. Everyone says that investing in a PPF is very good for long term..I mean, investments get locked in over a period of time, tax free income on realisation, can make about 1 crore rupees with regular investments over 36 years, etc.. but isn’t that a debt instrument and defeats the purpose?..
Hi Sunny,
Can you name 10 people(your friends, relatives or your colleagues) who have earned money from equities. So in every case debt should be part of once asset allocation & ppf is best instrument in that.
You can download the e-book from home page to know the reason.
I have 50 lacs spare my daily requirements are covered through other sources
I am a senior citizen with no liabilities where i should invest in FDS/Mutual Funds
Hi Prem,
Your investments depend on your investment horizon & goals rather than your age. And from your comment it looks you don’t need this money – so you should invest it according to the need of the beneficiary. So if horizon is long term go for Equity Mutual Funds.
Hi there,
Namaste everybody.
Would like to know if NRE funds invested in the equity and debt are repatriable?
Thanking you in advance,
Ravi
Hi Ravindra,
Any investment done through NRE A/c is repatriate.
Hi Hemant,
Good article and ‘Investment Vehicle’ – a very good example to describe/explain on Long and Short term plan…
Thanks Mani
Dear Hemant,
Is it worth investing through SIP in a good infrastructure fund(ICICI) for the next 5-7 years. This sector has been quite underperforming in the recent past and it has to go northwards over a period of time. Isn’t it the right time to accumulate ? Please comment
Hi Jayakumar,
It’s a great time to accumulate but my suggestio n is go for diversified equity funds.
Hi Hemant ,
Very good article , specially examples used of plane and cycle are bang on target ,
my query is about FMP , as returns are not already disclosed then how should i know in advance how much will i get ( will looking performance of other similar funds from same fund house will help ? )
Also do after tax returns of FMP beat the FD ?
Hi Rohan,
It was a misconception among investors that Fixed Maturity Plan (FMP) means getting fixed return. But FMP is only about Fixed Maturity – that your investment has some maturity date. Earlier asset management companies used to declare indicative yields but even that were stopped by SEBI last year. It is really tough to predict what you are going to get but you can take some idea from other funds with same maturity. If you are planning to invest in 1 year FMP you can see yield to maturity of a short term fund with 1 year maturity – not necessary that it should be from same AMC. After tax return from FMP has very high probability of beating the after tax return of FD if you are in highest tax bracket.
Hi Hemant
Very rightly said about the world’s most expensive hobby.
Nice article, can you also share some information on Liquid MF plans.
Regards
Thanks Prashant.
Liquid funds are more suited for the investor with an investment horizon of about a month. In personal finance, ‘liquid’ means anything that is almost as good as cash. Money market funds or Liquid funds as they are commonly known as are one of the safest places to park your money for short periods of time. Typically, the funds invest into money market securities and debt securities that mature in 91 days.
Most companies and HNI park their short term money into these funds as liquid funds are more tax efficient than the interest one can get from the savings accounts.
Some of the benefits of parking money into liquid funds are, zero exit load on withdrawals, safety, low expense ratio and benefits of reinvesting the dividend.
Hi Hemant,
You have written a very nice article. I follow what you have advised – go in for Mutual funds because the common investor does not have the time to research companies and invest in equities.
However there are people like me who do not know which is the better fund to invest in – you need to be quite careful in selecting mutual funds given the fact that there is a plethora of funds available and not all of them are doing too well!!! Quite a bit of research is needed to decide on which fund to invest. Of course I do admit that it is much easier to study funds rather than companies.
This was just an observation I made and not meant to discourage!! Hope all of us become wiser with the good advice that you have put up in your website. All the best. A big thank you from my side for all the help.
Hi Dr Biju,
Thanks for your appreciation & also for opening eyes of other readers. on a lighter note are you a eye specialist
You have rightly pointed the hard facts of life. Even I keep saying the same thing but in different manner.
Keep visiting TFL & sharing it with you friends.
Hi Hemant,
Dreadfully sorry that I did not see your comment. I just plain missed it. Incidentally I am not an Ophthalmologist (but my wife is one!). I am a Physician and Diabetologist.
Hope to keep in touch with you from on.
All the best
Hi Hemant,
I have 3 lacs, want to invest for good returns in long term, please suggest some good options.
Hi Pratima,
You have not mentioned your time horizon – for keeping myself safe I assume it to be 20 years. For this horizon one can confidently invest in diversified equity mutual funds. Now there are 2 ways of investing either as a lumpsum or systematically. If you already have tasted volatility of equity you can invest the full amount in 4-5 funds in one go. But if this is going to be your first interaction with equity you should invest through systematic transfer plan – investing whole amount in 6 to 12 months.
Hi,
Sir
I would like to thanks to you as i have no idea about short term & long term investment but u have note here the same with very good practical Example .
Thanks for knowlaging sharing & opening eyes for investor who wants to investment their money by systamatic way
Regards ,
Vaibhav Jadhav.
Welcome Vaibhav.
Hi Hemant,
Your articles are real eye opener but why don’t you suggest the actual names of Mutual Funds that are good and wherein one can invest. I had invested randomly specially in J M Mutual Fund and after 10 years my investment is almost half! Now I am waiting for the market to get better so that I can redeem from those funds. I would really appreciate if you could suggest some very good funds where I can invest. Thanks.
Hello Hemant,
I want to invest Rs.5K/month in SIP.Could you please suggest which will be best option for maximu returns in 10 yrs.Also I am looking for liquidity.
How much financial consultant charge for investment planning.
Thanks in advance
Regards,
Vishal Tope
Hi Vishal
Nobody can suggest you best option for maximum returns.However you can hope to get decent returns if you invest in two diversified equity funds with good present and past performance record.Keep tracking the performance of funds after investment.
Hi Hemant
It is good to know the definition of short term,medium term and long term.However for most people medium term does not exist and they consider anything more than three years as long term.
Hi Hemanth
First I want to say thanks to you for the Article. Now i am investing in SBI Contra fund -Growth plan as SIP (Rs.2000-00) since January 2010. and I also want to invest in gold fund as SIP (Rs.1000). Which MF I should prefer. Pls reply me.
With regards
Prasad
Hi Prasad
It is not clear whether you are a new investor or you have invested in other funds also.If you are a new investor, the logic of investing in SBI Contra Fund is not clear.Moreover, for a new investor SIP in gold fund is not a proper choice.
Hi,
I am planning to invest in SIP in two different funds, each 2,500 per month for about 10 to 15 yrs. Can you please suggest some MFs which are doing good?
Found some of the below funds through my research, Can you share your ideas on them?
HDFC Top 200 Fund
Frankin Blue chip
DSPBR TOP 100
RELIANCE GROWTH
Regards
Jeevan
Hi Jeevan
All the funds selected by you have a good long term past record.Only the performance of RELIANCE GROWTH has not been good for the last one year.Hence you can consider investing in the other three funds.
Thank you Anil.
You are welcome Jeevan.
I am planning to invest in SIP, below mutual funds . please advise to me good or not. its long term investment (3 to 5 years)
1. FRANKLIN Equity Fund (G)
2.HDFC Mid-Cap Opportunities Fund
3.HDFC Equity Fund (G)
Hi Mohan
The funds selected by you are good but you have selected two funds from one fund house which increases your risk.Moreover a time horizon of 3 to 5 years is medium term and not long term.
Good Article…
Hi Hemant,
I want to invest Rs.10000.p.m. for a period of 5-7years.I
am a beginner in this field.Which of thefollowing U suggest me to invest Rs.2000 each/
HDFC top200. DSPBR top100,Franklin bluechip, HDFC equity fund,SBI magnum emerging bus.(G),Franklin eq. fund,ICIcI pru. focussed bluechip equity,Hdfc midcap opportunities( G ) I hope you will kindly oblige.
With Regards.
Hi Vishnu Bhat
For investment in equity mutual funds your investment horizon should be more than five years. You can consider these funds for investment.
1 ICICI Prudential Focused Bluechip Equity.
2 HDFC Midcap Opportunities.
3 DSPBR Top 100
4 Franklin Bluechip.
It is not necessary to invest Rs 2000/- in each fund. You can invest Rs 4000/- in the first and Rs 2000/- each in the remaining funds.
Hi Hemant!
I am a single working woman, earning a monthly five-figure salary (>50,000). Since i have no dependents, how should i best invest my money ?
Thanks.
Hi Pekyi,
Its good to hear from you that you want to invest.I will tell you to go through mutual fund route through SIP rather then direct equity.This Money should be after meeting all expenses.The amount left you can invest for your retirement.
Hi Hemant,
i already invest 50000 in samridhi plus plan in the month of april, i got units 4821 & 10.25 nav rs but now nav is 9.50, today i seen ur article realize i invest at wrong policy, please helpme out wat todo now.
knowldge resource
Hi Hemant,
m a new member here. read many articles here and found realy wonderful.
a lot of useful info is given. really able to understand these concepts bcoz of ur awesome explanation.
my requirement for investment are tax saving and regular saving.
after reading all this i came to a conclusion to open a PPF acount, and invest in SIPs. pls correct me if m rong. but the problem is how to chose SIPs as not able to compare them. just goes over the head.
thnx
Hi Prashant
Please read the post – Best Mutual Fund For SIP.
DEAR Mr. Hemant,
your articles are real eye openers for beginners and experienced investors too.
i have been forwarding your articles to all my friends.
keep up this wonderful job.
rajesh
Thanks Rajesh.
Hi hemant,
thnx again for ur vauable inputs. after reading all this i am coming to a conclusion. i am planing to invest aprox 10K/month. out of which 3K in PPF, 5K in ELSS(already taken HDFC tax saver, 2K) and 2K in others. Need ur comments.
Thanks
Go Ahead.
Dear Mr. Hemant,
your articles are very useful. I have started investing from last year in equity mutual funds and i want to keep investing for 20 years.
Is it possible to earn 15-16% return in 20 years?
Hi Sachin,
Will suggest you to keep your expectation around 12-13%
Hi Hemant,
your work is very useful.I salute you. my younger brother aged 18 years&want to invest 500 Rs in mutual fund for 42 years till retirement.Please suggest best mutual fund .
Hi Sanjay,
As such there are no best funds but he can start sip in HDFC Prudence Fund.
Hi Hemant,
Your articles are really very useful for all those who want to make the most of their
hard earned money. Thanks a lot for such a great job for the entire society.
Thanks
Hi
I am 60 year old and have retired in September 2011. I am a NRI and have received substantial funds as retirement benefit. Presently I made two investments as follows on advice of my Relationship Manager:
1. ICICI Prudential Short Term Plan-Monthly Dividend (Dividend Reinvestment) for Rs. 10 lakhs
2. IDFC-SSIF-Short Term-Plan A-Monthly Dividend for Rs. 10 lakhs
In addition to the above, I have put in Rs. One CR in NRE account for 3 years at 9.25 % interest PA. The returns are tax free here.
Now I am planning to invest again on the advice of my RM Rs. 15 lakhs in the following:
1. HDFC Prudence
2. HDFC top 200
3. ICICI Prudential Focused Blue Chip Equity Funds
In addition to the above I am looking at parking around Rs. 50 Lakhs in liquid funds with the following, again on my RM’s advice:
1. HDFC Cash Management Treasury Advantage Plan &
2. Reliance Money Management Funds
Furthermore, I am planning to park Rs One CR in Liquid Funds to purchase commercial property.
Please advise if I have been given correctly recommended by my RM concerning the specified investments above.
Your advice will be much appreciated.
Bari
Hi MA Bari,
Financial Life is like Rubik’s cube – you will try to work on one part & will miss other five. I will suggest you to have a proper retirement plan through some individual Certified Financial Planner at your location – this will make sure that you will have comfortable retirement life.
I will suggest you to go through these retirement planning videos.
http://www.tflguide.com/2010/11/financial-planning-retirement-planning-guide.html
Hi Hemant
Thank you for your advise. Regards
plz suggest me the portfolio as i have a savings of 15000 per month. what are the better options for investment.
Hi Mudasir,
Any individual portfolio depends on lot many things including & not limited to goals, risk profile, time horizon, familiarity with products etc. Will suggest you to get in touch with some financial planner at your location.
where to invest in mutual fund for up to 3 years sip plan
Hi Shiju,
Your horizon is ver short – you should stick to debt instruments.
which company will give best returns
Hi Shiju,
You should learn more about investments – join TFL free financial literacy course.
Hi i am tarun iam 30 Year old so please tell me where i invset .
1) My Gole next 15 Year 10000000
2) i am invest 10000 per Month
3) suggest me some good sip
Hi Tarun,
You can read
http://www.tflguide.com/2011/07/best-mutual-fund-for-sip.html
Dear Hemant,
Thanx for the article relating short &long term investment. Actually I have just started taking interest in the equity market and at present trying to understand the nitty-gritty of it. I think I have done the right thing in getting subscribed myself to your e magazine. Thank you again for the wonderful article.
Thanks Anup – must share TFL with your friends.
Thank you Mr. Hemant, it was very interesting and useful information, easy to understand, I used it in my presentation
hi hemant ….. u r really doing very nice work … i ll definately tell my friends to read ur articles .. keep it up …
i want to ask u : i want to invest in equity market, so doing SIP in select 4-5 stocks of different sectors for next 4-5 years and stay invest for next 15 years ……. is it a good idea ?
Hi Ajit,
Read this – SIP Myths
http://www.tflguide.com/2012/02/sip-investment.html
please guide me.I WANT TO INVEST RS.2LACS .IN DELIVERY SHARES .WHICH WILL DOUBLE THE AMOUNT IN 2-3 YEARS.WHICH SHARES I SHOULD BUY FOR THIS.
Hi Amar,
If you got this answer – must share it here. I will definitely not invest in those share but try to track them for the period that you have mentioned.
Hi Sir,
If possible then could you please provide me some contacts numbers of the executive or a concern person to whom I can contact for taking SIP or MF’s.?
Tell me which is the best plans(SIP) where I can invest Rs. 1000 p.m
Is LIC retirement plan is best for us?
Hi Hemant,
First of all I must complement you on the Financial Literacy Mission which you have taken up.
I am 62 years old. After planning for my retirement and Medical Expenses; I had earmarked a separate sum of Rs. 10 Lacs for Wealth Creation.
2.5 years back I invested this sum in a PMS scheme of ING VIJYA QUANT 200, a pure Equity scheme with benchmark BSE 200 and expectation of 12 -15% CAGR over 5 years timeframe.
Although the scheme has outperformed BSE 200 after charges and all; but what I find that if I had deposited this 10 Lacs even 1 shot in HDFC 200 at that time, returns to date would have been better by appx. 5% (Rs. 50000).
Now I seek your advice should I redeem the investment and how should I go in for meeting my goal of wealth creation for Estate purpose. I have a time frame of up to 10 years.
Another opinion I will like to have from you.
You may be familiar with this site MoneyWorks4me.com.
These people talk about Equity Investment for long term and how to go about it.
Your views on calibrated approach to Direct Equity Investments.
Hi Hemant,
I have 1.5 Lac cash and i want to invest for short term(6-12 months). Please guide me where should I invest.
Hello sir,
Agents have given me illustrations of better return through Kotak capital multiplier plan and hdfc classic assure plan. Even my financial advisor is also asking to take jeevan anand through him (62000/yr) for making my debt portfolio strong. Will u give some input on this?
Will u suggest better debt instruments?
Hi Jatin,
Only 1 suggestion – change your financial advisor.
mohit
hello sir,
Iwant to invest some money by SIP mode,please guide me where should i invest.
{ 4 trackbacks }