Many investors park their funds hoping to earn good returns in the long run. Irrespective of market volatility, currency fluctuations and other macro factors, long-term investments always yield well in the distant future. What is concerning is our immediate cash needs, as the impact of inflation causes money to lose its value? Certain investing options are available that allow you to put your money according to your financial goals, risk appetite and liquidity requirements.
Liquid funds
If you are looking at short-term cash requirements, say between one and five years, you can start by investing in liquid funds. As the name suggests, these funds are all about giving you moderately good returns while lending you much-needed access to liquidity. These funds serve best when it comes to creating an emergency fund to meet contingencies. You can start by saving enough money every month till you have accumulated at least a year’s worth of expenses.
These funds provide higher returns than savings accounts because they invest in money market securities that mature in 91 days. You can enter and exit these funds at any time depending on your needs. The post-tax returns from these funds range between four and seven per cent.
Ultra-short-term bonds
Also called ultra-short-duration funds, these bonds are essentially debt funds with a lock-in period of three to six months. These funds assume a much lower risk component than liquid fund schemes, thus, allowing risk-averse investors to put their money into them.
If you are someone who does not want to stay invested beyond a few months, this kind of investment may help. However, investing for at least three months translated to zero risk of losing money. This means that investors lose nothing while availing the dual benefits of better returns than fixed deposits of comparable duration and lasting liquidity.
Arbitrage funds
These are not debt funds, but actually investments equivalent to debt instruments by using equities and futures. Investing in these arbitrage funds means earning profits owing to the price difference. The difference in price is somewhere around eight to nine per cent, which is more than the earnings from fixed-return instruments. Though many argue that these funds are taxed as equity funds, the impact is less considering a 10 per cent tax on long-term capital gains earned from mutual funds.
Money market funds
These are the least coveted products in the mutual fund industry due to their lowest risk component. These funds invest in short-term government instruments such as call money market, commercial paper, treasury bills and bank CDs with maturities between three months and a year. There is no risk of default or interest volatility, thus, freeing investors from the fear of losing their investments. The interest rates are higher than bank savings accounts, thus, hinting at their tax efficiency.
Post office fixed deposits
You can buy these deposits from any post office near your place. These deposits are just like bank fixed deposits with a one-year lock-in period, can be used as collateral up to 75 per cent against loans during emergencies and are tax efficient.
New age savings bank account
The competition is stiff these days, thus, prompting new-age banks to offer more interest on savings accounts than their traditional counterparts. Apart from the higher interest rate, the convenience of using these accounts is more.
Short-term investment options are a great deal for people looking to earn from them without worrying about too much volatility. Apart, the tax burden is minimal, thus, relieving investors from unwanted liability.
