There are lot of avenues or opportunities if someone wants to invest for long term, but when it comes to short term investments people feel that there are not many options available, okay, but the question is what is short term or long term?
Though there is no standard definition, according to me any requirement or goal which is less than 3 years are short term and time horizon of less than one year can be called as ultra short term and long term is more than 5 to 7 years.
In this post will try to give few investment options / avenues available for short term & ultra short term:
- Savings account: One of the safest and easiest way to access your money as you can withdraw your money at any point in time, the returns vary from 4% to 7% depending on the banks. New age banks in order to garner more deposits offer higher interest rate but with certain clause. Please do remember that returns from savings account are taxable under section 80 TTA.
- Liquid Funds: Liquid funds usually invest in short-term government securities and money market instruments and such short term investments make them reasonably secure and absolutely liquid. These funds are absolutely safe. You can expect post tax returns of 5 to 6 % depending on your tax bracket. Liquid funds gives you full peace of mind as these funds invest in very short maturity (up to 91 days) and the underlying investments usually carry a high quality rating and hence default risk is almost NIL.
- Ultra Short Term Funds: These funds are slightly above liquid funds in risk and return meter as these funds also invest in short term debt instruments with maturity of above one year. Higher the maturity means the interest rate risk is more and as they invest in short term papers we need to check on the credit quality as well. And these funds also charge a small exit load if you redeem within six months to one year.
- Arbitrage Funds: These funds are considered as equity mutual funds though we can invest in these funds for short term (say 6 months and above). As it is considered as equity funds they are more tax efficient than debt funds and returns will be also better if we hold for more than one year.
- Bank Fixed Deposits: FD is the most invested financial asset in India as it is easy to transact and liquidate and there is no strings attached like, maturity period, exit load etc. The biggest drawback of FD is it is not tax efficient as we cannot use indexation benefit and when the interest rate is tend to come down FDs carry high degree of reinvestment risk.
- Recurring Deposits: This is also a secured and easy to transact investment, its best suited for those who cannot invest in lump sum. If you goal is less than 3 years and if you cannot invest a huge money then RD in a bank is best option to consider. The interest received here is also taxable as per your tax bracket.
These are some basic and easy options if your investment horizon is less than 3 years.
Happy Investing1
R♥Vi
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