Investors are always looking for investment options to park money for a while, until they need it. Their go-to option is the regular savings bank account. But there are plenty more short-term options for investors.
Investors with short-term money have two primary objectives:
The typical investment tenure for such investments is less than 12 months.
Here are three options for such investors:
Short-term fixed deposits
Banks offer depositsof varying time frames beginning with a minimum of 7 days. So an investor looking to park money for even a week can choose a fixed deposit with a matching tenure.
The interest on the deposit is added to income and taxed at the marginal rate of taxation.
Investors can consider liquid funds to park money for a period as little as one day to as much as 90 days or even higher.
Liquid funds invest in money market investments like call money among others. It is rare for liquid funds to see a dip in their net asset values (NAV).
Investors can opt for the dividend option or the growth option. Dividend is taxed at nearly 30%. Capital gains are added to income and taxed at marginal rate of taxation.
From a taxation point of view investors in the lower tax brackets are better off opting for the growth option while investors in the highest tax bracket can choose either option.
Short-term mutual funds
While liquid funds are suitable for investment tenures of a few days, short-term mutual funds are ideal for tenures running into a few months.
Like liquid funds, short-term debt funds are managed conservatively with the explicit aim of safeguarding capital and posting modest capital appreciation.
From a tax perspective short-term mutual funds are at par with liquid funds.