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Learn about India’s best short-term mutual funds and where to invest to earn good returns over a short-term investment horizon. We have covered the following in this article: What is Short-Term Mutual Funds?Short-Term Mutual funds are open-ended funds having a maturity period ranging from 15 days to 91 days. The maturity period of these funds varies depending on the maturity period of the underlying instruments. These funds invest predominantly in high-quality assets that are of low risk. This fund is an excellent investment option for risk-averse investors. If you are looking for options to park your surplus funds (for less than a month), then liquid funds are a great option. If you have a longer investment horizon (two to four months), then you can invest in ultra-short-term funds. Top 10 Short-Term Mutual FundsThe table below shows the top-performing short-term mutual funds based on the last 3-year and 5-year returns:
Who Should Invest Short Term Mutual Funds?Short-term mutual funds are suitable for those investors having an investment horizon of shorter than three months. These funds are a better option than a regular savings bank to park your surplus funds. Short-term funds are capable of providing much higher returns than bank deposits and provide much-needed liquidity. Risk-averse investors may consider investing in these funds since the risk carried by these funds is on the lower side due to the shorter maturity period of the underlying securities. These funds have historically provided returns in the range of 6-8%. Taxability of Short-Term Mutual FundsAs per the amendments of the Budget 2020, dividends offered by all mutual funds are added to your overall income and taxed as per the income tax slab you fall under. Before the Budget 2020, dividends were made tax-free in the hands of investors as the fund houses paid dividend distribution tax (DDT) before they paid out dividends to the investors. The rate of taxation of capital gains of these funds follows the rules of taxation of debt funds. Short-term capital gains (realised on selling your debt fund units within a holding period of three years) are added to your overall income and taxed as per your income tax slab. Long-term capital gains (realised on selling your debt fund units after a holding period of three years) are taxed at a rate of 20% after indexation. Risks Possessed by Short-Term FundsSince short-term funds are a class of debt funds, they nearly carry the same risks that any other debt funds carry. Short-term funds come attached with the following risks:
Liquidity risk is the possibility of the fund manager being unable to sell the underlying instruments without resulting in a significant loss. This is the possibility of the issuers of the underlying securities notwithstanding by their word of paying regular interest and principal at the time of maturity. This is the probability of the interest offered by the issuers of the underlying securities fluctuating due to the various economic and geopolitical factors. What is the Return Potential of Best Short-Term Mutual funds?Some short-term mutual funds in India offer comparatively higher returns on investment as against bank deposits. The return rate could range between 8-9%, again, based on the assets in the fund portfolio. Considering the tax benefits, the return on these investments tends to be higher than the post-tax returns from other forms of investments. Advantages of Short-Term FundsThe following are the most significant advantages of investing in short-term funds:
Updated on October 8, 2022 , 7022 views
One can park this fund in short term investment options, so that it can be liquidated anytime one chooses while earning a return reward too. While Investing money for a vacation, start early to create a large corpus and focus on low risk, assured Return on Investment and high liquidity instruments. Ready to Invest? 1. Liquid FundsLiquid Funds invest in short-term money Market products such as treasury bills, commercial papers, term deposits, etc. Liquid funds invest in securities that have a low maturity period, usually less than 91 days. Liquid funds provide easy liquidity and are less volatile than the other types of debt instruments. Also, these are a better option than traditional Bank Savings Account. In comparison to bank account, liquid funds provide 7-8 percent of annual interest. Investors wanting to invest in liquid funds, can choose amongst the below-mentioned Best Liquid Funds:
2. Ultra Short Term FundsUltra short duration funds invest in fixed Income instruments which have a Macaulay duration between three to six months. Ultra short-term funds help investors avoid interest rate risks and also offer better returns compared to liquid Debt fund. Macaulay duration measures how long it will take the scheme to recoup the investment Here are some of the best performing ultra short term funds to invest: 3. Low Duration FundsThe scheme will invest in debt and money market securities with a Macaulay duration between six to 12 months. Low duration funds have a higher maturity duration than liquid and Ultra Short Term fund. Risk-averse investors can invest in this scheme for a short period and earn better returns than that bank savings account. These funds generally offer steady and stable returns. Here are some of the best low duration funds to invest: 4. Money Market FundThe money market fund invests in many markets such as commercial/treasury bills, commercial papers, Certificate of Deposit and other instruments specified by the Reserve Bank of India (RBI). These investments are a good option for risk-averse investors who want to earn good returns in short duration. This debt scheme will invest in money market instruments having a maturity up to one year. Here are some of the best Money market funds to invest: 5. Short Term Funds/Short Duration FundsShort duration funds mainly invest in Commercial Papers, Certificate of Deposits, Money Market Instruments, etc, with a Macaulay duration of one to three years. They may provide a higher level of return than ultra-short-term and liquid funds but will be exposed to higher risks. Here are some of the best money market funds to invest: 6. Bank Fixed DepositsBank fixed deposits can be one of the best short term investment options, as these are secure investments. Also, many banks provide better interest rates on FDs, which typically Range from 3% to 9.25% per annum. Investors can park their money for a minimum period of 7 days to a maximum of 10 years. A similar option to Bank FD is Recurring deposit, which is equally effective for short term investment. If you have a habit of saving monthly, then Bank Recurring Deposits are a good option to go. They have a minimum of six months to a maximum of a decade’s tenure. Their interest rates are around 8% per annum. 7. Savings AccountA savings account is the most popular short term investment option in India. Also, it’s the safest and easiest way to access your money. If you invest your money in savings account, you can get around 4% to 7% of the return. However, interest rates may vary bank to bank. One can deposit and withdraw their money as per their convenience and requirements. 8. Fixed Maturity PlansFixed Maturity Plan (FMP) is offered by Mutual Funds, which invest in money market and debt instruments. These funds come up with lock-in period varying from a month up to three years. Unlike FDs, you cannot withdraw your money in FMPs before the maturity period. However, FMPs are more tax efficient than FDs, and you can also expect better returns. ConclusionEvery investor has their own choice of instruments with regards to their goals. In order to invest in the short term Investment plan, one should calculate the amount, risks, tenure, interest rates and liquidity that comes along with each instrument. Since you are planning a short term investment, you should make a smart choice with instruments that have a low risk. Invest Now and make your short term goals successful! How Invest in Short Term Investment Plans Online?
Where can I invest for 3 months?The best short term investments options are:. Savings Account.. Recurring Deposit.. Gold or Silver.. Debt instrument.. Stock Market/Derivatives.. Large cap mutual fund.. Treasury securities.. Money market fund.. Where can I park my money for 6 months?Short-term investments: Five smart options to park your funds. Alternatives to savings account. Also Read. ... . Debt funds. ... . Bank fixed deposits. ... . Company deposits. ... . Post office time deposit. ... . Arbitrage funds. ... . KEEP IT LIQUID.. Where should I invest my money for a month?Best Monthly Income Plans You Should Consider. Senior Citizen Saving Scheme.. Post Office Monthly Income Scheme.. Long-Term Government Bonds.. Corporate Deposits.. Monthly Income Plans.. Pradhan Mantri Vaya Vandana Yojana.. Life Insurance Plus Saving.. Systematic Withdrawal Plans.. |
Short term investment plans for 3 months
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