For a fellow investor, it is a head scratcher to decide upon a particular investment option. Every option serves different perks and flaws. Basically, every option is initially divided on the basis of its maturity period, and is categorized into long term and short term investment. Going by its name, short term investment options are those where the maturity or tenor period is less than 1 year and long term are those where the period elongates to more than a year.
Following factors will throw light on these investment options-
- Flexibility- This is one factor where short term investment takes all the praise. It provides the investor the option to change the investment at certain small periods. The invested amount is not tied up, as in long term investment, and the investor can then invest the returns to some other option.
- Diversification- Flexibility is also a subset of diversification. Usually, investment amount in short term investment options is very less as compared to long term investment. This allows the investor to invest the leftover amount in some other investment option. Short term investment option helps in building a diversified portfolio and not all the amount is directed to only one option.
- Risk- Diversification will now help the investor in hedging the risk. As the amount is scattered to many asset classes, risk associated with it also spreads. Less return in one investment will be sustained by decent return in the other investment option.
- High returns- Gone are the days where good returns were promised only after 10 years or 30 years. With the coming of new investment platforms like peer to peer lending, an individual can invest a very short amount for short term and earn returns as high as 20%. The invested amount in many peer to peer platforms is Rs. 10,000 for periods as small as 6 months. This type of arrangement also excites young people to save and invest.
To sum up the comparison of short term and long term investment option, short term is always valued highly. They are a quite suitable investment area for the individuals looking for fast returns for their invested amount. In fact, short term investment options are hugely encouraged nowadays because of its fundamental benefit, i.e. flexibility. One can take out the return generated in short time and use it for further investment or any other purpose.