One of the most important considerations before choosing an investment avenue is the expected “time horizon”, i.e. time in days, months or years that an investor intends to stay invested.
And why is this so important?
All investments should ideally result from a financial or investment plan. Such plans usually indicate how long it would take for a financial objective to be met.
Let’s consider an investor who just made ₹ 50 lacs in a real estate transaction. He is looking for a safe avenue to invest, before he takes a final decision on what to do with that money. An ideal scheme in this case would be a Liquid Fund, which is designed to provide liquidity with generally a high probability for capital protection. He can redeem whenever he has made up his mind.
Therefore, the decision on how long one needs to stay invested, depends on investment objective. Investors need to periodically review investment status and progress, with their advisors. During such reviews, decisions to redeem, switch, invest or leave alone are usually made.