Whereas long-term investments have all the time drawn consideration, it’s equally important to concentrate on short-term investments, which you’ll be able to simply convert into money inside 1 to five years.
Listed here are 4 monetary devices in which you’ll be able to put your short-term cash.
1. Liquid Funds
Monetary prudence requires being emergency prepared and Covid-19 heightened the significance of getting a sizeable emergency corpus. The corpus ought to be equal to not less than a yr’s expense.
You may put your cash in liquid funds to construct a contingency corpus.
These funds put money into cash market securities maturing in 91 days and have the potential to supply barely larger returns than a financial savings account.
You may simply convert it into money, and upon redemption, the cash is credited into your account inside 2-3 enterprise days.
ELSS, or equity-linked financial savings scheme (ELSS), is a class of mutual funds that invests most of its belongings in equities.
ELSS is the one mutual fund providing tax-saving advantages beneath part 80C of the Revenue Tax Act, 1961. In different phrases, funding in ELSS will help you decrease your tax legal responsibility.
ELSS has a lock-in of three years, which implies you’ll be able to’t withdraw cash for 3 years from the date of funding. The lock-in offers time to your cash to develop, and when you keep invested for a protracted interval, you will get inflation-beating returns.
Nevertheless, be aware that ELSS can carry a reasonable to excessive threat; subsequently, it’s prudent to go forward solely when you have a high-risk tolerance.
3. Tax-saving Fastened Deposits
You may also park your short-term cash in tax-saving FDs which have a tenure of 5 years. Because the title suggests, investing in tax-saving FDs helps you decrease your taxes.
Nevertheless, be aware that, not like common FDs you can liquidate earlier than their tenure by paying a nominal penalty, you’ll be able to’t achieve this in a tax-saving FD. Should you really feel your liquidity wants might come up earlier than 5 years, you’ll be able to go for the plain vanilla financial institution FD.
4. Financial savings Account Providing a Excessive-Curiosity Fee
You could have seen commercials of banks providing financial savings accounts with a high-interest charge. You may ponder opening an account with any such financial institution and put your cash.
Some banks present month-to-month curiosity as a substitute of quarterly payout, which will help you develop your financial savings and withdraw cash when required.
The Closing Phrase
The above-mentioned short-term funding choices will help you meet your short-term monetary necessities and likewise decrease your tax legal responsibility. Pleased investing!
(The writer is President & Head, Private Wealth, Wealth Administration)