Investment is a means by which an asset is created which helps in compounding the invested funds to meet various objectives. These objectives can be wealth creation and also for future expenses for children’s higher education, paying loans, saving for retirement, Children’s marriage, Foreign vacations, or creating emergency funds.
Investment can be done in various asset classes like Gold, Real Estate, Share market, Debt Funds, Bank deposits, Insurance, etc. Here we will discuss in the context of the share market or the stock market.
Let it be any asset class, investment can be broadly classified into 2 major types
- Long term investment
- Short term investment
Long term investment:
Long-term investments are a type of investment where shares are bought and held for multiple years, anything more than one year can be considered as a long-term investment. This investing strategy is suitable for financial goals that are long-term such as retirement, Children’s marriage, Children’s higher education.
When an investor has a time horizon of several years or more for withdrawals from their investments, they tend to create fortune or wealth that can be used as planned for disposal. This long-term holding will allow the investments to potentially recover from periodic declines in value.
If we specifically see long-term investment for the stock market we can get other benefits like dividends, Bonus shares apart from price appreciation.
Short-term investments are typically bought and held for a shorter period of time, generally less than a year. They are typically suitable for needs or goals that are more immediate or in the near future. Examples of short-term investing goals can include saving for a vacation or paying loans.
In the stock market perspective, a short term can be of various types
Intraday: Intraday trading refers to buying and selling stocks on the same day before the market closes irrespective of profit or loss.
Swing trades: Swing trade is a type of speculative trading, wherein stock is held for one or more days in order to take advantage of the price movement or the swing.
BTST/STBT: BTST stands for Buy Today and Sell Tomorrow, STBT stands for Sell Today and Buy Tomorrow, typically in this technique, a trader can buy the stocks on T- day and sell them before receiving them in the Demat account on T+2. The STBT facility allows the investors to sell the shares first and buy them later(this can be applied only for futures and options).
Closing Thoughts: Both long term and short term have their own advantages and disadvantages, It depends on the type of investor, risk capacity, profit expectation, and the time dedication for analysis.