SHORT/ MEDIUM/ LONG TERM INVESTMENT

All of you must have heard about short term, medium term and long term investment. But have u ever thought what is really meant by short/medium/long term and how it affects your decision regarding choosing the investment vehicle? Let’s try to find the answers.

FROM THE TRADERS PERSPECTIVE -----holding period for different time frames is as follows

SHORT TERM --- from few minutes to few hours, for this purpose he analyzes 5min or 15 min time frame charts technically.

MEDIUM TERM --- from few hours to few days, for this purpose he analyzes hourly / daily chart.

LONG TERM --- from few days to few weeks, for this he analyzes daily/ weekly chart.

Most of the traders don’t consider fundamental analysis but they rely on technical analysis.

FROM THE INVESTOR PERSPECTIVE ----- here there is lot of variation regarding holding period for different time frames in general public as well as experts. I personally follow following holding period for different time frames

SHORT TERM --- up to 3 years.

MEDIUM TERM --- 3 to 7 years.

LONG TERM --- more than 7 years.

The main reason for which we invest is to meet our future goals, which could be either short, medium, or long term in nature. You can able to decide in which product you  will invest if you can able to take decision regarding for how much period you are going to invest.

SHORT TERM objectives are usually met through debt assets, which are less volatile, as one cannot take risk with short term capital. Assets like fixed deposit, recurring deposit, P.P.F., MUTUAL FUNDS LIKE fixed maturity plans, short term debt funds, liquid funds are used for short term investment.

MEDIUM TERM objectives are usually met through combination of debt and equity assets.

LONG TERM objectives such as kid’s education and their marriage ( of course if you start your investment/ financial planning in early age then only this will become long term goal !!! ), and for retirement I think equities is the ideal asset class. This can be done by direct stock investment or equity mutual funds.

               Historical data shows that equities provide the highest returns among all asset class after adjusting for inflation. The investment risk associated with volatility may be higher in initial period it smoothens out over long term.

              Past studies have reported that returns from equity over long term have been in the range of 12-15% annualized. In fact, if you look at the most recent data (as on 31 march 2011), the BSE SENSEX has generated a compounded annualized return of 17.6% over the last 10 years. Let’s look the returns of  some of the diversified equity mutual funds over the last 10 years which I suggested here --- http://kolhapuritrader.blogspot.com/2011/04/best-equity-diversified-mutual-funds.html

1)      FRANKLIN INDIA PRIMA PLUS – 27.95%

2)      FRANKLIN INDIA BLUECHIP – 26.88%

3)      HDFC TOP 200 – 31.65%

4)      HDFC EQUITY – 32.92

5)      ICICI PRUDENTIAL TOP 100 – 22.94%

This is one method to decide in which asset class to invest, the other method is according to ASSET ALLOCATION will post regarding asset allocation later.