Investing for a period of one-year can yield stable returns, but it can be less as compared to the long-term investment plans. Read further to know what mutual fund options are available when it comes to the short-term investment horizon.
In the mutual fund industry, you will find two types of individuals – those who prefer short-term investment and others who prefer a long-term investment cycle. Mutual fund experts and advisors recommend one-year investment plans for conservative investors who do not want to take any risk and want to achieve short-term goals - paying your child’s fees or buying a gift, etc. Mutual fund investments that have a one-year investment period mostly comprise of debt fund options; however, the maturity varies from fund to fund.
Here’s why it is best to invest in short-term mutual funds, rather than keeping your money idle:
You can earn decent and steady returns
You will face low or zero risk as an investor, when there is no drop in investment value due to market fluctuations
The money is safe, even if you achieve low returns
A great liquidity option during emergencies
If you count yourself as a risk-averse individual and want to invest in the best mutual fund plan for only a year, check out the listed investment plans:
These are short-term investment plans that invest in fixed-income securities consisting of corporate bonds, money market instruments, treasury bills, and other debt securities. As compared to equity mutual funds, these are less risky. You can choose to invest in debt funds if you’re looking for a high amount of liquidity, earn a regular income and tax benefits.
This type of mutual fund leverages the difference between derivatives and cash to generate profit. The returns are dependent on the volatility of the market. If you have surplus cash, a low-risk appetite and want to enjoy tax deductions, you can park your money in Arbitrage Funds. For taxes, these funds are treated as equity mutual funds. For funds sold within a year, you need to pay 30% of the tax for short-term capital gains, while 10% tax charges are applicable for long-term capital gains on arbitrage funds sold after a year.
Also known as close-ended debt funds, fixed maturity plans invest in corporate bonds, certificate of deposits commercial papers, money market instruments, government securities and high-rates non-convertible debentures. Most common tenures for this type of plan ranges from thirty days to 180 days, 370 days and 395 days. FMPs can be either a dividend or a growth mutual fund option. If it is fixed maturity dividend plan then, the fund house levies Dividend Distribution Tax (DDT); however, if it is FMP growth option, then capital gains tax is applicable with the benefit of indexation.
These are money-market instruments which the Central government issues, having the maturity of up to a year. T-bills have three-maturities – 91 days, 182 days and 364 days. They are issued at a discount and redeemed at face value. For instance, a Treasury Bills of Rs.100 can be availed at Rs. 95. On the date of maturity, buyers get paid Rs.100. Treasury bills have a zero-risk and a high degree of tradability.
Short-term debt mutual funds refer to a scheme where the plan has a maturity varying from 1 year to 3 years. These are low-risk funds offering moderate returns to the investors. Short-term debt funds are often compared with fixed deposits (FDs) due to their similar investment terms. Unlike FDs, these debt funds do not attract any penalty if redeemed before maturity.
Ultra-short debt funds are mutual fund schemes wherein the maturity ranges from 3 to 6 months. It has zero risks if you’re looking to invest for a few months. As compared to FDs, this type of fund offers slightly high returns.
An open-ended debt fund invests in money market instruments like T-bills, commercial papers (CP), and term deposits. Liquid Funds have a maturity of 3 to 6 months. It is a low-risk mutual fund scheme which offers high returns than your FDs or savings account in the bank. If you are looking for a short-term investment period, liquid funds are ideal investment instruments that offer returns in the range of 7-9%. The liquidity aspect of the mutual fund scheme is what makes this an attractive option among investors.
If you have surplus cash and want to invest for a short amount of time, then you can choose any of the investment plans. You can easily attain stable returns by taking low risks, keeping in mind your short-term financial goals.