5 Short-term investment plans for those who don’t have a financial goal

Investors can create a risk-adjusted, short-term investment portfolio by incorporating different instruments across the yield and risk spectrum.

5 Short-term investment plans for those who don’t have a financial goal

While long-term investments work best when you have clear financial goals, short-term investments can help you save as you structure a financial plan. For many young investors, short-term investment options present appropriate avenues to build investment discipline and save money that can be deployed towards specific long-term financial plans, or squirrel away funds for a short-term goal such as an international vacation or making a down payment on a new car.

Let’s take a quick look at five popular short-term investment options.

1. Recurring deposits (Yield: 6%–7.25%)
With tenures ranging from six months to 10 years, this monthly deposit scheme is a budget-friendly option to save and invest for a short pre-determined goal. Most banks now give the option of starting an RD through their mobile app. On a chosen date every month, the amount you wish to save is debited from your bank account and deposited towards the RD. The capital investment and accrued interest is paid out as a lump sum on maturity. 

Related: FAQs about recurring deposits: Everything you need to know

2. Money market/Liquid funds (Yield: 5.8%–6.6%)
As the name suggests, these short-term mutual funds are highly liquid and have no entry or exit barriers. Money market funds invest in fixed income securities with maturity up to 91 days, making them the least risky of all mutual fund options. You can safely park a large amount in liquid funds for a short period while optimising returns.

Related: Why keep money in a savings account when you can invest in these liquid mutual funds? 

3. Bank fixed deposits (Yield: 5%–8%)
The trusted bank FD is one of the safest choices for short-term deployment. Banks offer varying tenures for a deposit, ranging 7 days, 14 days, 30 days, 45 days, 181 days, 390 days, and so on. Many bank offer accounts with auto-sweep facility, where account balance above a certain threshold automatically ‘sweeps in’ to a 181-day deposit. If the account balance falls below the threshold, the corresponding amount and interest earned 'sweeps out’ from the deposit.

4. Debt funds (Yield: 8.9%–11.9%)
Low-duration debt funds with maturity up to 390 days work well for horizons longer than a year. Such funds typically invest in short-term corporate bonds and treasury bills, and deliver returns higher than liquid funds. However, many debt funds may not have an early exit option in case you need to liquidate funds for an emergency.

Related: Puzzled about debt funds? Here are answers to six common questions 

5. Index funds (Yield: 8%–14%)
Those with a greater appetite for risk and a time horizon that’s longer than a year can consider investing in large cap or index-based mutual funds. These funds tend to be the least volatile of all stock market investments and have the possibility of delivering higher returns than other short-term investments. 

Related: Investing on a budget: How to invest with a monthly salary of Rs 50,000 [Premium]

Equity investments do not offer any capital protection, so investors must consider all factors before investing in an equity-based plan. It would be most prudent to create a risk-adjusted, short-term investment portfolio by incorporating all these different instruments varying across the yield and risk spectrum. 

Related: 5 Large-cap funds that have beaten the benchmark index

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas. 


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