Short Term Investment Options
Posted on: 02/Dec/2016 3:06:47 PM
In light of the recent demonetization, a large chunk of everyone’s cash will now stay in banks for the next few months. Savings bank interest is 4 percent and 6 percent in some banks. Here are a few ways to deploy idle money to earn higher returns.
Fixed deposits have expected returns of 6-6.5 percent. Interest earned is added to total income and taxed at the normal rate applicable to investor. To get the best returns and lowest income tax bracket, open a long-term deposit of 3-5 years and break it whenever you need the money. Most banks no longer levy a penalty for premature withdrawals.
Liquid Funds and Ultra Short Term Funds have high liquidity and have expected returns of 7-9 percent. These are ultra-safe schemes in which, unlike fixed deposits, the income from mutual funds is treated as capital gains and taxed at a lower rate if the investment is held for at least three years. They are also more flexible. You can withdraw small amounts whenever required or invest more when you have surplus cash.
Short term Debt Funds are also high liquidity funds earning returns of 8-9 per cent. Those who don`t need the money for the next 8-10 months should go for short-term debt funds. These are also debt schemes, but invest in a mix of short-term and medium-term bonds. The returns are slightly higher than what liquid funds and ultra short-term debt funds give, but there is also an exit load payable if you redeem your investment before a minimum period that ranges from 3 months to 12 months. In some cases, the minimum investment period can be up to 36 months.
Percent. Investors who can hold for one year should go for arbitrage funds because they offer tax-free returns. These funds invest in stocks and equity instruments but don`t carry the market risk.
Monthly Income Plans have expected returns of 8-10 percent. If you can stomach a little risk, monthly income plans, or MIPs, from mutual funds can be a low-risk entry point to the equity markets. Their returns are better than debt funds, though they also carry a moderate risk. These funds have exit loads so check the terms and conditions before you invest.
