Long Term or Short-term Mutual Funds?

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Short term mutual fund investments are ideal for investors who require money quickly or aren’t sure when they will be required. Pooja, for example, started an SIP in a Mutual Fund Scheme last year. Since she was moving soon, her goal was to build enough money to pay an advance deposit on her next rental property. She was ready for any future uncertainties. She made the smart decision to invest. These situations call for short-term investment plans.

We are currently facing unprecedented challenges due to the current conditions. If you have short-term investments plans, then investing in mutual funds can be a great choice. Long-term investments are not ideal, as they allow investors to keep their money invested long enough to reap the benefits of compounding.

Financial goals can be either long-term or short-term. It can be for your retirement planning or your future travel plans. The key decisions are to determine your time frame, your investment cost and your risk tolerance. Ask yourself the following questions: “Am I investing to achieve a specific goal or purpose?” How long is my investment period? What is my risk appetite? Is it suitable for my income? These questions can help you make the best decision about which fund is right for your plan.

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Mutual Funds Investments are subject to risk

You must remember that all investments involve risk. The nature and extent of these risks can vary. Mutual Funds are no different. Mutual funds are not all subject to the same risks regarding investment return.

Equity schemes can generate revenue by offering superior long-term returns. Additionally, equities can beat inflation. In some ways, these risks are worth taking.

Liquid funds are typically less risky than equity funds. Liquid funds prioritize capital protection by taking lower risks and generating returns according to the risk. Remember that returns are not the only risk. You should also consider other risks.

The best way to determine the extent and nature of a Mutual Fund Risk is to assess the scheme and receive the guidance of an investment advisor, or a distributor of Mutual Funds.

A Mutual Fund may have you aware that it invests in a variety of securities. Diversification is a good way to reduce risk. It is a good idea to diversify your investments so that you don’t invest all of your income at once. To reduce risk, it is important to divide your wealth. Like the famous saying, “Don’t put all your eggs into one basket.”

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Every investor can choose a specific allocation that suits their financial goals, time frame, and financial situation. There are many mutual fund schemes available that can be tailored to meet the needs of different individuals.

Talk to your Mutual Fund distributor, or your investment advisor, to discuss your financial goals and decide where you want your money. You can take the following example:

  1. Equity-oriented Mutual Funds – Look for longer periods, usually 5 years or more.
  2. Mutual Funds with Fixed Income.
  • Liquid funds – Very short term investment. Less than one year
  • Short Term Bond Fonds – Medium term investment – 1 to 3.
  • Long Term Bond Fonds – Long term investment for 3 years or longer

Trust your advisor’s expertise, understand your goals and then invest wisely in a scheme.