If you have some funds and wants to earn good return from this fund that you almost want to redeem after some time i.e. wishes to make a short term investment, here are some good investment options:
Remember here the point made is these returns may or may not fetch you a higher return but may enable you to balance your total portfolio risk as a whole:
1. Arbitrage funds:
These funds tend to advantage from the price differential in the spot and futures market to generate handsome returns. Here in the fund manager managing the arbitrage fund buys securities from the cash market and simultaneously sells that in the futures or derivatives space, so this gives a profit to the investor.
For the investment, these are hybrid mutual fund products which invest both in debt and equity but primarily in equities and so accordingly are taxed at equity funds. In the last one year, the average return from the category has been to the tune of 3.2% as per Value Research.
2. Low Duration Mutual Funds:
These funds typically invest in money market and other debt instruments but they hold assets of longer maturity or lower credit quality. Hence they have a higher credit as well as interest rate risk.
In the case of low duration mutual funds, if the holding period is up to 3 years then short term capital gains tax at the individual's tax slab rate are applicable.
And for a holding period of over 3 years, the indexation benefit is allowed for long term capital gains tax. Indexation means that for the purpose of capital gain calculation the purchase price can be increased to make up for the inflation. Long term capital gains are currently taxed at a lower rate of 20%.
3. Corporate Bond funds:
For short term investors can consider corporate bond funds with lower maturity. These are indeed the best funds which lend at least 80% of their corpus to companies to highest credit rating.
Investors with a time horizon of 2-3 years can invest in the scheme for a good return.
These funds offer investors a better return in comparison to fixed deposits of the same maturity.
Further, long term investment into these funds can be highly beneficial as they then offer tax efficient returns due to indexation benefits.