Investments to be fruitful should be carried over extended period of time. But this should not lead us in to believing that short term investments are entirely futile. Short term investments(1 Week to 3 Years) are suitable when an investor wishes to make the best of sizable funds which he is liable to spend in the near, but possibly uncertain future.
For instance, money earmarked for House Registration when the developer is still getting his act together to close the project and being economical with information. These are some of the avenues of short term investment, that are also safe.
Savings Bank Account
This is the preferred mode to cope with imminent, impending expenditure. It is also the least beneficial.
Interest rates may be as low as 3.5%, but, can go as high as 7 per cent. Some banks like Yes Bank, Kotak Mahindra Bank, IndusInd Bank, RBL Bank etc., offer interest rates way beyond 3.5 per cent.
However, it is a sure and secure form of keeping money that is readily available.
Unlike bank deposits, you need not worry of bearing early withdrawal charges, which can be around 1 per cent.
Also, you get tax exemption of up to Rs 10,000 from interest income from savings bank account, unlike FDs, where there is no tax break.
Fixed Deposits from KTDFC
Fixed deposits come in a variety of forms and contrary to popular perception are available for as less as a Week. These are listed as short-term FDs in banking web portals and are ideal for transitory savings. Interest rates are low but better than savings account and increase with tenure.
KTDFC Deposits are the best, because company deposits are not secured and KTDFC Deposits are guaranteed by the government of Kerala. KTDFC is a government of Kerala owned enterprise.
Interest rates offered are in the range of 8 to 8.5 per cent, which is excellent short to medium term investment. Go for these deposits for safety as well as good yields on your deposits. Remember, there will be a TDS that is applicable over and above interest of Rs 5,000.
Short Term Mutual Funds
These invest in Debt instruments in the market. The aim is to secure investment and make moderate gains.
The returns are better than some FD instruments but subject to market risks. For investment window ranging from 18 months to 3 Years, the returns are of the order 6% to 9%, which makes it a good instrument while saving for Children's education, Marriage etc.
Funds like ICICI Prudential and HDFC Mutual Fund offer Fixed Maturity Plan Mutual funds that are suitable for those seeking better returns as also have better propensity for risk since their performance can be easily tracked. These can also serve as a corpus for emergency funds.
There are a wide variety of Debt instruments like Government Securities, Bonds- both Sovereign and Corporate, Commercial papers, Treasury Bills etc.
These carry moderate risk, offer better returns than FDs, are relatively long duration but can be operated over a definite tenure with predictable returns. Some are also tradeable.
The highlight of the recent Monetary policy was increase in Repo rate by 0.25% and liquidity neutrality. This should favour the Bond market and interest rates of about 8% are on the cards. This should improve the returns for those looking at investing in these instruments.
Other Short-term Investment Avenues
Other investment avenues include ELSS, Liquid Fund SIPs, Arbitrage Funds and a whole bouquet of financial market offerings. Most of these are high risk high return instruments.
The latency of such funds, which is the time from which you seek redemption to the time the money is deposited in your account is relatively higher than say FDs or even debt instruments.