According to industry experts, every individual investor is supposed to have more than one form of investment. It helps in minimizing the capital risk, and it also increases the potential to generate a return. Investors should have portfolios like long-term portfolios, short-term portfolios, dividend portfolios, and many more.
Short-Term Investment V/S Long-Term Investment
Long-term and Short-term investments are decided upon the tenure of the holding. Moreover, both of these forms of investment have different functions, and therefore, the investors have different expectations. Short-term and long-term forms of investments are decided upon the needs of the investor.
For instance, if the investors are just starting up with their career. They might want a mix of both short-term and long-term investments. Whereas, settled individuals might only prefer long-term investment as the risk of losing the capital is less.
Investments are termed as short-term when the holding period is not more than one fiscal year. When an investor purchases and sells financial securities within the same year is called short-term investment. .
Forms Of Short-Term Investment
When an investor purchases a stock, or any other financial instrument, for a week or a month, it is termed positional trading. In this case, investors take the position after keeping targets and strict stop-losses.
During intraday trading, traders need to close their position within the same trading session. It is one of the most preferred forms of short-term investment.
IPO Investment (If applied for Listing gains)
Usually, IPO investments are sold after listing. The listing price of the IPO stock is based on the demand and supply. If the demand for the company is high, then it might open at a 70-80% premium also, especially in the bull market. After such listing gains investors tend to book their profits.The IPO investment for listing gains is considered as short-term investment.
Long-term investment is when investors purchase financial instruments for wealth creation. A long-term investment is also called value investing. Usually the gains from a long-term investment are slow but they act as a better asset to hold. Asset appreciation is the real gain, in the case of long-term investment.
Forms Of Long-Term Investment
Real Estate Investment
Investors prefer illiquid assets as long-term investments, such as real estate.
More than equity, mutual funds and bonds are preferred for long-term investment. However, even equity shares give out extraordinary returns in the long run. Investors should prefer investing in good quality company’s equity shares for long-term investment.
Generally, gold is the most preferred commodity for long-term investment. Especially, in Indian households, excess income is parked in sovereign-gold bonds or is used to purchase physical commodities.
Commodities can be bought in cash as well as in the futures market. Investors can buy futures contracts if they keep abreast of factors affecting various commodities. Delivery of the commodity has to be taken, if it is bought in the cash market. However, this is a risky proposition.
Both of these investments have different roles in the portfolio and quite strategic differences. Such as, short-term traders use volatility to book profits. For long term-investors, volatility does not affect their investment choice. Similarly, long-term investors are more aggressive while taking any position. Short-term investors take positions according to the risk-reward ratio. Therefore, they cannot put a lot of capital into one position.
Investors need to factor in all these details before creating short-term and long-term investments. New modern-age Bajaj Financial Securities trading apps have started suggesting the best investment options for both long-term and short-term. So those investors, who do not have time to segregate their investments can use these trading apps.