Top 4 Short-Term Investment Options

Written on Friday, December 1, 2017
By Mitali Sharma

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You might be planning to buy your favorite car shortly, or wish to go for the long-awaited vacation in foreign lands. If these are your financial goals for next two-three years, then definitely, you won't like postponing or delaying them by a few more years. But when it comes to such short-term plans or dreams, the challenge is how to accumulate the requisite fund in a short span of time. Why not try some investment options, specifically designed for accomplishing short-term financial goals.  

 

Liquid Funds

 

When it comes to short-term investment, Liquid Funds are perhaps one of the most popular options. Basically, these are short-term debt fund schemes that invest in short-term market instruments such as government securities, treasury bills, etc. These funds pick up instruments bearing up to 91 days maturity, however, maturities are mostly lower than that. In mutual funds, risk orientation of these funds is least as these have a no-to-limited impact of market volatility.

 

Ultra Short Term Funds 

 

Another option suitable for short-term investing is Ultra Short Term Funds. Like liquid funds, these funds are also a category of short-term debt funds, but the risk element of these funds are higher as compared to liquid funds. Ultra-short-term funds invest in those short-term securities that have a maturity of over 3 months. As the maturity time is longer, so these instruments can be traded on the market. Thus, its NAV becomes market depended and may swing as per market movements. This makes ultra short-term funds more volatile than liquid funds.

 

Exit load is the another factor that make these two products differ from each other. Liquid funds are free of exit load while some of the ultra-short-term funds may levy exit loads on investors if the exist is made immediately after investment. The exit load varies from fund to fund.

 

Fixed Maturity Plans

 

To meet your short-term goals, you can also invest in Fixed Maturity Plans. These are again debt funds that invest in debt securities like government bonds, treasury bills, certificate of deposits, etc. The maturity date of an FMP is same as the maturity of the debt instrument upon which it has invested. It means a 1-year FMP will invest in debt instruments that too mature in that time period. FMPs are close-ended and thus you can't withdraw money before the maturity period. But these are considered to be more tax effecient in comparison to Bank Fixed Deposits. 

 

ELSS (Equity Linked Savings Scheme)

 

Thre are many good reasons that make ELSS a hot pick among investors. 

 

1. It is great for tax saving as it can save you up to Rs. 46,350 on investment up to Rs. 1,50,000 under Sec 80 C of Income Tax Act, 1961.

 

2. It has the lowest lock-in period of only 3 years under section 80 C, while other options like bank FD and NSC have 5 years lock-in and PPF has 15 years of lock-in.

 

3. Being equity-linked, it holds higher potential for returns.

 

4. The returns earned after holding the fund for more than one year are again tax-free.

 

Afore-mentioned investment options are ideal even to support your long-term goals such as buying a house. Instead of going heavy on your loan amount, why not try these investment options to accumulate the initial fund like the down payment.

 

'Mutual Fund investments are subject to market risk. Please read the offer document carefully before investing'

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