Short-term or long-term: Which is better for mutual funds?

Do you agree when we say that ‘What’s the score?’ is one of the most frequently asked questions now a days, everywhere? May it be with your office colleagues or your best buddy group all that you must be talking about must be which team will make it to the finals or what should be that ‘special strategy’ the teams need to use.

With the ongoing One-day series already making buzz and T20 competitions on its way, yet again, one wonders if fans have settled for this ‘three-hours-thrill’ or still look up to the traditional 5 day game in whites. While the shorter version of the game might attract you with more glitz and glamour, there are still people who love to devote their time in the longest format of the game i.e. Test cricket, where the actual skills and patience of the players gets tested.

Its two different formats or approaches to essentially the same game. One is a rapid fire, adrenaline pumping approach where the game ends in a couple of hours. The other is a ‘test’ of patience and skill which lasts for 5 days.

One’s approach to investing is no different, you have two types of investors, one - who look at a short term investment horizon and aim to earn high returns instantly and the others who believe that slow and steady wins the race and that a long term overview will nurture their investments properly. Unfortunately, many of the Investors seem to have lost their patience to invest for a long term. All they want is quick returns which lead to frequent churning of the portfolio, which may hinder their money from growing smoothly and systematically.

Investing is always a long term phenomenon. You should give your investments fair amount of time to generate decent returns for you. Investing for a long term can be related to test cricket as the investor can plan and rationalize his investments without any hurry. Some people may find investing for the long term very boring as they find test cricket boring but they should always remember that test cricket extracts the true potential out of the player as it examines whether the player has the correct temperament and discipline to sustain the game for 5 days. Similarly, when you invest for the long term, you imbibe the correct discipline of how to invest which may help you with the opportunity to make the most of your investments. Long term investments also help you to get benefits like:

Short term investing may be considered to be speculation. It is because there is a great deal of risk involved and often people may lose money when they do this. As in case with T20 cricket, the batsman takes risk right from the first ball and tries to whack everything that comes in his way. In some occasions the batsman succeeds and in some he fails. So the amount of risk is very high. Similarly, short term investments accompany a huge amount of risk. The main aim for short term investment is quick returns, which may be generated in some cases but a wrong decision may eat up your entire savings.

Although many people manage to build sizable amounts of wealth by jumping from one investment to another, the odds are against you if you try to follow in their footsteps. One wrong move and your portfolio's value could suffer irreversible damage. In the long-run, buying and holding may probably leave you in a better financial position.

However while you still must be deciding whether you are a T20 (short term) investor or a Test (long term) investor, remember the line that Warren Buffet quipped when asked what the right holding period is – “Our favorite holding period is forever.”