Step By Step Guide to Start Short Term Investment (Guide for Beginners)
A short term investment can be explained as an investment plan where the primary objective is to fund a short term goal or to earn returns from money kept idle, ensuring liquidity of the fund as well as capital preservation.
The time duration for a short term investment is often understood differently by people, but it can vary anywhere from a few weeks to up to five years. Any investment plan above 5 years holding is usually termed as a long term investment plan.
There are a lot of options and strategies available in the market for investing money in short term plans and you can choose any of them. However, before actually putting in your money in any short term investment instrument, it is necessary to evaluate the scheme or investment option on the following parameters liquidity, term, risk, return percentage and tax savings. You can choose to then invest in the instrument which is best suited for your needs.
Step By Step Guide to Start Short Term Investment
1. Fix Your Financial Goal and Amount Needed to Fund it
For proper planning, you should always have a fixed financial goal before you. The goal should have a fixed objective or the defining purpose and the amount required to fulfill the desire. Example of financial goal can be college education for child which would cost Rs. 5 lakh, or a foreign trip for your family which could cost Rs. 10 lakh. These can be defined as one part of your financial goals. Another important part of your financial goal is to be time factor which we will discuss in the next point.
2. Choose Your Time Frame Within Which the Goal has to be Achieved
Time you have to collect and save money for funding a goal plays an extremely crucial and important part of your financial goal without which it is incomplete. Time affects the interest you will earn out of the investment you make and in some cases where the goal is more than one year away, there is an added factor of inflation which reduced your purchasing capacity and will increase the amount required to fulfill the goal, if compared to the cost of the same goal as per present day standards. Hence, a proper financial goal has both aspects included in it i.e. amount required and time frame. For example; college education for child which would cost Rs. 5 lakh needed after 3 years or a foreign trip for your family which could cost Rs. 10 lakh after one year.
3. Analyze Your Current Financial Holdings
The next step of planning your short term investment would be to analyze your current savings, your spends and the amount you can take out on a monthly basis to fund your financial goal. If you have already saved money to invest in a small savings instrument then it would help greatly if you invest this money in an instrument which would give in a fixed return for a fixed lock in period. Or you can choose to pay at regular intervals from your earnings, through which you can allocate a portion to fulfill your financial goal.
4. Assess Your Risk Appetite
Once you have decided as to how you will procure the initial amount required for you to fund you financial goal, the next step is to determine your risk appetite. Some saving options like stocks or mutual; funds have inherent risk involved, but also have a potential for return. Meanwhile other short term investment options like bank fixed deposits, bonds or debentures do not need you to take risks as they are safe investment options and the returns are guaranteed. You need to choose which asset class is best suited for you.
5. Choose Your Investment Instrument
Many people directly jump to this step ignoring all the previous steps which is not proper or beneficial. Once you have gone through all the above mentioned steps, only then you should come down to scheme selection since the steps mentioned above would eliminate a lot of schemes which might appear lucrative to a person at first. There are a lot of different options that as an investor you can choose from, to fund your investment objective. This includes bank FDs, company FDs, debentures, stock market investments, post office schemes etc.
6. Invest Money Following Your Strategy and Monitor at Regular Intervals
After you have chosen your preferred instrument for investment based on your goal, the time needed to achieve it, your risk appetite and your present financial holdings, it is now time for execution and actual investments in the selected schemes. When making any investment, it is advisable to go through all the mentioned terms and conditions of the investment scheme before putting your money in it. Also, after you have invested, it is important to keep a record of all documents related to the investment such as certificates, invoices, agreements etc. You should also remember to monitor your investments periodically, as this has become quite transparent nowadays with the digital revolution.
Conclusion:
The ultimate aim of the short term investment plan should not be lost during the investment journey or time period. You must remain committed and dedicated to your goal. An investment advisor can help you stay committed to your goal when you find it difficult to carry on. It is only through dedication and perseverance that financial goals can be determinedly fixed and achieved.
Author
CapitalVia
Pioneer in Investment Advisor
