2016 has been quite a painful year for financial investments. The Sensex is trading at almost where it was at the beginning of the year, which means stocks have not done great. Fixed Deposit interest rates have fallen a bit in the last few years and mutual fund returns have at best been flat. It is a very tricky investing environment to be in. Here are a few safe short term investment options that you could consider.
Yes Bank Savings Account
This has to be the best bet, when it comes to safe and short term investment bet. This is because, the savings account, gives you an interest rate of 6 per cent. This is almost as good as some bank deposits of lower tenure. But, the advantage of a savings account vis-a-vis a fixed deposit is that there is a tax exemption of up to Rs 10,000, on interest earned on a savings bank account. This is a big positive. Also, you can withdraw the money anytime, and there are no penalties. Bank deposits attract a penalty of one per cent, if you withdraw the same, before a select period.
RBL Bank Savings Account
This account offers you a higher interest rate than the Yes Bank Savings Account. For example, if you have a balance of Rs 10 lakhs, you get an interest rate of 7.1 per cent. This is much higher than the bank FDs of smaller tenure. This is not a bad bet to open an account. As we have mentioned, savings bank interest is tax free in the hands of the investor up to Rs 10,000. If your balances in the savings account is less than Rs 1 lakh, you get an interest rate of 6.1 per cent and for amounts below Rs 1 lakh the interest rate is 51. per cent. This investment is also short term and is safe and with low risk.
Bank fixed deposits with lower tenure
You can consider a host of bank deposits with a lower tenure, if you wish to place money for the short term. For example, you can consider a 45-days deposit or a 3-day deposit depending on the period you wish. We wish to state that if you break these deposits ahead of the tenure there would be a one per cent penalty that would be levied. So, as it is these deposits attract a very low interest and to compound the misery would be the breaking charges. So, think carefully before you place money in this safe short term investment.
Shares of Coal India
Now, one would be really surprised why we are recommending a stock to buy, as a short term investment. The reason for recommending this stock is plenty. Coal India gives a pretty good dividend yield of almost 8 per cent. Now, this is tax free and one can expect the dividend to come through in the month of Feb. This means with a holding period of just about 3-months you can get a decent dividend. We wish to emphasize that while interest on fixed deposits are fully taxable, dividend earned from shares is tax free in the hands of investors. And, if the shares of the company climb, you are in for a solid bonanza.
NMDC is another stock that is somewhat similar to that of Coal India. The stock is trading at around Rs 120 and has the potential to give good tax free dividend yields of close to 7 per cent. Last year the company declared a dividend in the month of February and if it does the same, the holding period is just about three months. This makes the stock returns very attractive.
SBI Liquid Fund and Others
There are many liquid funds in the market, where you can place your money. However, you need to invest for at least 1-year, to get some decent returns. There are a host of liquid funds that are available in the market. These include SBI Liquid Fund, Baroda Pioneer Liquid Fund, UTI Money Market fund. Most of these funds have generated returns of around 7.9 per cent per year. Returns from Liquid Funds is taxable. There would be a very marginal change in returns between different schemes, since most of these fund invest in government securities.
Birla Sun Life Dynamic Bond Fund
Birla Sun Life Dynamic Bond Fund is another debt instrument from mutual funds, where you can readily park your money. The one year returns from the fund is a fantastic 14 per cent. The bulk of the investment of the fund is in government dated securities. Apart from this the fund also has investment in the debentures of Piramal Enterprises and Tata Motors and Shriram Enterprises. As we mentioned earlier, bond funds are also very much taxable.
Savings account of banks
You can also look at savings account of banks, which offer an interest rate of 4 per cent.