Decoding Long Term vs. Short Term Investment Plans

People these days are quite aware of the importance and significance of investment plans in the pursuit of financial strength. However, when it comes to choosing the right type of investment plan in the UAE a lot of them are stuck in a dilemma. Investment plans are categorized on the basis on the basis of various factors, like the objective of investment, the time horizon of investment, returns on investment or degree of risk associated with investment plans.

Before we dive deep into the world of investments, let us quickly take a look at what actually are investment plans and how are they classified?

What are Investment Plans?

In simple terms investment refers to allocating capital in a particular scheme or plan with the objective of generating and accumulating wealth in the form of returns. In the world of finance, the benefits obtained from investment plans are called returns and they might be positive or negative. An important point to be kept into consideration while understanding investments and investment plans is that returns and risks come in hand in hand. The higher will be the rate of returns higher will be the degree of risk.

Contrary to the ideal scenario, investors usually look for plans that come with low degrees of risks and high rates of returns. In order to ensure that rookie investors do not suffer the loss of capital, it is usually recommended that they should begin with investment plans that involve a low degree of risks and moderate rates of return.

Types of Investment Plans

As mentioned earlier investment plans are classified on the basis of a plethora of factors. In this thread, we’ll be emphasizing the classification of investment plans on the basis of the time horizon of the investment.

On the basis of the time horizon of the investment, plans can be classified mainly into two categories:

• Long Term Investment Plans
• Short Term Investment Plans

Long Term investments can be defined as investment plans that allow investors to park their surplus capital for relatively long periods of time when compared to conventional investment tools. Typically long term investment plans are the ones that are carried for a period of more than five years and are preferred by people opting for investments to accumulate wealth in the long run.

Contrary to this, short term investment plans are defined as temporary investment tools that are highly liquid and are typically converted into cash within a period of 5 years. Short term investment plans allow investors to park their surplus capital for smaller periods which provides them a sense of security. Investors can convert these short term investments instantly when in need of urgent financial assistance.

Long Term Investment Plans

As mentioned earlier long term investment plans are designed and developed in a way that they allow investors to invest their capital in the long run. The ideal approach to invest in long term investment plans begins with choosing the correct type of plan followed by patiently waiting for the plan to yield profit in the form of positive returns.

The table below encompasses some of the best long term investment plans in the UAE.

Benefits of Long term Investment Plans

There are numerous benefits of long term investment plans, here’s a quick rundown-

• Flexibility
• Objective oriented financial Planning
• Loyalty Benefits
• Life Coverage
• Wealth accumulation

Short Term Investment Plans

Any form of investment that allows investors to park their capital for a period less than five years may be considered as short term investment plan. Short term investment tools are ideal for achieving short term goals as they usually come with high levels of liquidity. Short term investment plans are suitable for investors that are willing to park their additional capital at a secure spot with the objective of growing it over the span of time.

The table below encompasses some of the most popular forms of short term investments in the UAE.

In a Nutshell

Long term and short term investment plans both have their own pros and cons. While choosing the form of investment one should lay emphasis on their goals, and returns followed by rigorous research to reach a meaningful conclusion.