Who doesn’t want their hard earned money to grow in the shortest possible time? In fact, certain situations in our life require us to meet short-term financial targets. And there are specific investment options, characterized by liquidity, keeping principal intact and short investment tenure, to cater to such needs. Expecting massive returns from a short-term investment is unrealistic and hence setting an achievable target to garner optimum returns is advisable.
Below are some short term investment options for you. You should consider these for investing in line with your short-term financial goals and objectives.
It is a type of mutual fund that invests in various money market instruments like a certificate of deposits, treasury bills, commercial papers, and term deposits. These are less volatile and come with a maturity tenure of up to 91 days. The best feature of this fund is easy liquidation and no lock-in period. Also, it does not have any exit load. You can expect a return of around 6-7%, subject to prevailing market condition by investing in Liquid Funds.
Bank Fixed Deposits
This instrument is mostly sought after because it offers safe and guaranteed returns and is highly liquid. You can invest in this scheme for a term ranging from 7 days to 10 years. The duration of the investment varies from bank to bank. You can opt for the interest to get credited in your account or reinvest the interest earned to get cumulative return. Depending on the tenure you select, the interest rate on Fixed Deposits is determined. It typically ranges from 4% to 8%. Senior citizen investors can earn an additional 0 .5% on their deposits. An FD can be liquidated anytime, but premature withdrawals result in lowering of interest income for the invested tenure by 1%. The interest you earn on your fixed deposit schemes is taxable as per your applicable tax slab.
Recurring Deposits (RDs) are a great option for those looking to save bit by bit over time to build a corpus. Once you start investing in a recurring deposit, a fixed amount is deducted from your account on a fixed interval. This investment can be undertaken for a tenure of 6 months to upto 10 years. The interest earned is similar to that on FDs for a given tenure. You will have to pay penalty in case of premature withdrawals as per the bank’s prescribed rates. The return in this kind of investment scheme is low to moderate.
Fixed Maturity Plans (FMPs)
This scheme is often compared to fixed deposit schemes in terms of the tenure associated. Fixed Maturity Plans are closed-ended debt mutual funds with tenure ranging from 1 month to five years. You can invest in this scheme only during the new fund offer period. The objective of this scheme is to provide steady returns over a fixed maturity period. The fund is invested in money market instruments, corporate bonds, commercial papers and government securities. FMPs has proven to be a good plan for those who seek assured income from their investments. This is also a recommended investment option for those who fall in the higher tax bracket and lose out a significant amount of the interest earned on FD to taxes.
Corporate Fixed Deposits
Corporate FDs are like bank FDs, but they carry higher risk. The interest rate offered through this investment scheme is usually 1% to 2% higher than the bank FDs. The minimum tenure for this scheme is one year. Premature withdrawals are allowed by the companies as per their discretion. However, they may charge a penalty as per the applicable rate. It can be a good choice to diversify your investment and maximise the return. The interest earned is added to an individual’s income and if the interest earned is over Rs. 5,000 per year, TDS is deducted.
Arbitrage fund is a type of mutual fund that leverages the price differential in the cash and derivatives market to generate returns. These funds are hybrid in nature as they have the provision of investing a sizeable portion of the portfolio in debt markets.
They are comparable to liquid funds or a pure debt fund whose returns are in range of 6-9% per annum, but from taxation perspective they are treated like equity mutual funds. Most of the arbitrage funds have a small exit load anywhere from 0.25% to 0.5% if you take out the money before 90 days.
(The writer is CEO, BankBazaar.com )