How to become rich fast in India: Your investment decoded
Short term gains on investment depends upon the time horizon. Generally, it is one or two year investment.
Everyone wants to make fast money! Hence, people begin investment at quite early age, to make sure they their future or fulfill their desires. However, if you are planning to buy a house or vehicle or planning for wedding or just want to get rich in two year's time, then there are host of ways to investment. It needs to be noted, every hard earned penny must be invested wisely. However, not many of us are aware how to make fast money.When it’s about investing, time horizons take the center stage. Investment horizon is more than just numbers.Short term gains on investment depends upon the time horizon. Generally, it is one or two year investment. Let's find out how to become rich in just 1-2 years time.
Archit Gupta, Founder & CEO ClearTax said, "It is one of the critical factors to arrive at a suitable investment haven. Additionally, a higher level of clarity on time horizon would increase the likelihood of financial goal accomplishment."
Before moving to the analytical aspect, let’s first understand what an investment horizon means and how important it is in the overall product selection framework, as per Gupta.
What is investment horizon?
Investment horizon reflects the length of time for which you stay invested in a financial instrument. During this period, he/she will not feel the need to withdraw the funds from the said avenue. In addition to goals and risk appetite, investment horizon is the third critical thing which influences your choice of investment haven. It varies among individuals and is directly linked to his/her financial goals. It can range from a few days to as long as 20 years or even more. Accordingly, it can be divided into three categorie i.e. short-term, intermediate/medium term and long-term.
Short-term refers to a near point in time and technically goes upto around 1 year. Medium-term horizon ranges from 3 years to 5 years. Long-term is usually a period of more than 5 years. Your goals may be differ as per the investment horizon. Additionally, the investment chosen to meet those goals need to be aligned with your investment horizon.
Why investment horizon matters while investing?
Broadly speaking, it is the time horizon which differentiates an investor from a speculator. Moreover, investment horizon also determines the level of risk that you would be exposed to. So, the longer you stay invested, the more you would be exposed to risk. Here, risk means the probability of fluctuations in fund returns.
A person who stays invested for 5 years may face a higher risk than one who stays invested for 2 years. As returns are a function of risk assumed, so an investor taking higher risks would expect higher returns. Accordingly, he/she would select investment avenues which give higher returns. This is the reason which makes investment horizon an important criteria while going for investing.
Additionally, as investment is a function of compounding, your money needs to stay invested for the given timeframe to multiply. If an investor is unsure about his investment horizon, then tendencies of his/her untimely redemptions increase considerably. Especially when it’s about investing in equities, a beginner may commit mistake of exiting as soon as he/she notices a fluctuation in fund values. Thus, being sure about your time horizon is necessary to generate the desired returns.
Yet another aspect which needs attention is matching your investment horizon with the duration of the given product. Investment prudent says that short term goals need to be financed with short-term securities like debt funds. Similarly, long-term goals need to be financed with long-range securities like equities. In case of a duration mismatch, you may either exit early or very late. Early exits may prevent your wealth from compounding in the desired manner. Late exits have the danger of erosion in fund value due to market volatility.
Where to invest for 1-2 years?
A time period of 1-2 years is regarded as a short-term horizon. In this period, an investor needs to focus on two aspects i.e. liquidity and preservation of capital. Liquidity refers to the ease with which an investor may redeem his investments on demand without loss of value.
One cannot think of investing in equities for such a short interval because of high volatility involved. Additionally, parking excess funds in a savings bank account may not give you optimal returns. In such a scenario, liquid funds may come handy. Liquid funds are a type debt mutual funds which invest in debt and money market instruments like bonds and treasury bills.
The fund manager maintains a portfolio of high-rated securities which have a low maturity period. This helps to reduce the fluctuations in fund value as well as default risk. As liquid funds don’t carry an exit load, you may easily redeem your investments anytime. Moreover, it gives higher returns than plain savings bank account. You may use liquid funds to achieve short-term goals like creation of emergency funds, payment of EMIs, etc.