Medium Term

The medium term is a financial period that denotes the time horizon or holding period for an asset or investment. How long the term is, generally depends on the investor and the nature of the asset. Here, the asset can be a stock, a bond, or a real estate property.

Understanding the associated time horizons of assets is essential, as it can affect the risk and return factors. Primarily, investors who select middle-term investments do so for a middle ground between short and long terms, as there is a more natural balance between risk and return.

• The medium term can be referred to as the maturity period of an investment considered moderate, based on the investor's goals and requirements and the nature of the investment. Depending on the asset, it could be days, weeks, or years.
• Such a term usually has a moderate risk and return compared to short and long-term investments.
• An appropriate example is medium term notes (MTN), which are debt notes issued by companies to maintain steady cash flow. MTNs are usually held for 5 to 10 years.

Medium term finance is one of the three types of investment holding based on its time horizon – short, medium, and long. It might seem like a simple concept – holding an investment fora reasonable period. But there's more to the idea than just the time involved.

First off, different investments have different time horizons. Secondly, adopting any specific term follows the investors' financial goals. Thirdly, investors should weigh the risk and return factors before choosing an asset.

Generally, people are willing to take higher risks in a long-term investment, as, over time (usually years), the fluctuations tend to even out. Also, the higher risk will confer a higher return to the investors.

Conversely, investors seek to minimize risk in a short-term investment, as the market fluctuations may or may not balance quickly. Therefore, the returns from the asset will also be proportionately less. However, this depends on the investor. Some swing traders profit from extremely short-term fluctuations.

So, the risk and return will be medium in an investment with a reasonable maturity period. That is, the risk and return will be higher than the short-term investments and lower than the long-term investments.

Also, what people consider short, medium or long-term depends on them. For example, an investor might consider a 5-year holding period in a stock for long-term, whereas investing in a mutual fund for the same period might be middle-term.

Further, within a stock market, the term means different periods for different investors. For instance, a day trader might consider a 10-day holding period long-term. A swing trader might consider the same period medium, whereas a buy-and-hold trader might view it as short-term.

Consider the following examples of medium term investments:

Example #1

Ellen was an investor who was in her early 50s. So she wanted to be prepared for her retirement. She noticed that there were many retirement investment options. So Ellen decided to make two investments – a 10-year moderate-to-high-risk bond that promised a 12% return on average and a 15-year moderate-risk bond with a 9% expected return. The first investment is over a medium period, and the second is for an extended period.

Example #2

Here's news from August 2022, when global equity funds attracted inflows for two weeks. Reuters reported that this might be due to the cooling inflationary pressures in the United States, fueled by falling commodity and producer prices.

Equity funds inflow equaled $3.22 billion, a 19% increase over the first week of August. Short and medium term funds constituted $663 million in inflows, whereas high-yield funds brought in $1.78 billion.

The main difference between a medium and long-term investment is the asset's time horizon or holding period. However, what's medium and long depends on two main factors – the investor and the investment. For example, the investor might have some medium term financial goals or long-term goals behind choosing an investment. Also, what is medium or long-term for one investor might not be so for another.

For example, a person might invest in a mutual fund for 10 or 15 years, but the same person won't be ready to hold stock for the same period. Again, this is because of the nature of the investments, risk, and expected return.

Here is an analysis of the approximate period for investments of various periods. Let's also consider the short-term aspect of the investments for better understanding.

This article has been a guide to Medium Term & its meaning. We explain the topic in detail with examples and a comparison with long-term investment. You may also find some useful articles here -

• Medium-Term Notes
• Yield Curve
• Payday Loan