Where to invest money for short-term benefits? Which are the best options available for investment in India? These are some of the commonly asked questions we often come across.
While everyone may be planning for long-term investments, sometimes we may have a little amount kept aside that can be utilized for short-term investments. While parking your money in a Fixed Deposit can be a good option, but you can look beyond it as well. For most investors, their go-to option is the usual savings bank account. But there are a lot of other short-term options for investors.
What is short-term investment?
Any investment which has tenure of less than 5 years is considered to be a short-term investment. Short-term goals are typically set to achieve any unavoidable thing that’s probable of occurring in the near future. For instance, it could be your kids further education for which you would need cash, or buying a motor-bike for your child after his graduation 2 years down the line, these are all goals that need to be achieved on short-term basis.
Here are some short-term investment options for investors:
Savings Bank Account
The safest way investment is to keep your money in a savings bank account. The advantage of parking your money in a savings bank account is that it involves zero risk percentage. The aim of this form of investment is liquidity, and not earning in exchange. Banks usually provide an interest rate in the range of 4% to 7% on such savings account. As per the bank rules, the interest is credit to your bank account either quarterly or annually.
Short-term Debt Mutual Funds
One of the best options of short-term investment is short term debt mutual funds. These short term funds mainly invest in government securities, money market instruments and corporate securities. These investments provide about 5% to 8% interest rate, though not completely guaranteed. Debt funds are frisky in nature, so it’s a good option for investors who are willing to take that risk and to invest for a period of three months to one year.
Equity Linked Savings Schemes (ELSS)
ELSS is the next best tax saving scheme where the minimum locking period is three years. It is considered to be a good option where the long-term capital gains are completely tax free. ELSS generates about 20% to 25% returns for the investor. The minimum amount of investment in ELSS is Rs. 500 and is qualified for tax deduction under section 80C up to a maximum of Rs. 150000. Thus, if you are looking an option of tax saving with wealth generation, ELSS is for you.
Arbitrage Funds
This is an option for typical conservative investors though many are not aware of this option. To put it up in simple words, the fund manager buys a stock (shares) in cash, and sells the same in future market. The difference between this is your return on investment. They approximately give 8% of interest post tax.
Hence, in order to achieve your short term goals, you can select any of the options listed. But before investing, keep in mind your financial goals, capacity and returns that can be expected while parking your funds.