Financial experts emphasize that time horizon should be the primary consideration when choosing investment options rather than focusing solely on return potential. According to Kshitiz Mahajan, Managing Partner & CEO, and Hrishikesh Palve, Director at Anand Rathi Wealth Ltd, speaking on Zee Business, understanding the time horizon of an investment goal is one of the most important parts of financial planning. As reported by Anand Rathi Wealth Ltd, ignoring this fundamental principle can lead investors to select unsuitable investment options, take unnecessary risks, or struggle to achieve their financial goals.
For goals with zero to three-year timelines, experts recommend prioritizing safety over returns. Mahajan explained that investors should consider low-risk options such as liquid funds, money market funds, short-term funds or arbitrage funds for short-term requirements. According to the experts, equity investments are not suitable for short-term goals due to market volatility that may impact invested capital when money is required. Even investors with high risk appetite should avoid equity exposure for goals with such short timelines.
Goals between three and seven years require a balanced approach between growth and stability. As reported by Anand Rathi Wealth Ltd, for goals with a three-to-five-year horizon, balanced advantage funds or balanced funds can be considered. For goals in the five-to-seven-year range, large-cap or large-and-mid-cap funds may be suitable depending on the investor's situation and risk profile. The experts highlighted that this category requires a balance between growth and stability rather than aggressive equity exposure.
For goals with seven years or more time horizon, experts recommend equity-oriented investments for wealth creation. Mahajan explained that investors can consider mid-cap, small-cap, multi-cap funds or other equity options depending on their risk capacity. According to the experts, equity is a growth asset class suitable for longer investment periods, while debt can provide stability and liquidity when required. The experts emphasized that the difference between 6% and 12% compounding rates can significantly impact wealth creation outcomes.
Financial experts highlighted several common mistakes investors make when ignoring time horizon considerations. As reported by Anand Rathi Wealth Ltd, these include investing in equity for short-term goals, keeping long-term money only in fixed deposits, investing based only on past performance, and ignoring asset allocation. The experts stressed that investors should maintain a balance between equity and debt, with around 60-70% equity allocation for long-term goals, while debt allocation can provide stability during market downturns.
