When the goal is near but you are not sure when it will happen, for such occasions, the funds need to be available immediately whenever the need arises. The main point is the liquidity of these investments, they can be redeemed in a quick time.
With various goals in mind, we look at investment options for shorter durations mostly for a year. This happens when the goal is near but we surely don’t know when it will happen, such as a planned vacation or a marriage in the family. For such occasions, the funds need to be available immediately whenever the need arises.
If you are also looking for investment options with a horizon of 12 months or lesser, here are some options for you;
Bank Fixed Deposits – This is one of the safest and most popular options among people. With bank FDs, each depositor in a bank is insured up to a maximum of Rs 1 lakh under the deposit insurance and credit guarantee corporation (DICGC) rules, for both principal and interest amount. Almost all banks allow investing in their FDs online.
As per your need, you can opt for either monthly, quarterly, half-yearly, yearly or cumulative interest options while putting your money in bank FDs. The tenure for bank FDs comes with the option of 6 months, 9 or 12 months. Some banks even offer higher duration as different banks have a different duration for deposits.
Currently, the interest rate offered is around 5.8 to 8 per cent per annum for most tenure up to 1 year and above. An additional 0.5 per cent id offered to senior citizens on their deposits. With bank FDs depositors can also choose to renew their investments on maturity. Hence, after the tenure is over, the investor can reinvest their funds if the need is not there.
Note that the interest rate earned from bank FDs is added to the depositor’s income and is taxed as per his/her income slab.
Other than the regular bank FDs, few banks have come up with a modified version of FDs, which are much more flexible in nature such as the SBI Flexi deposit scheme, ICICI iWish deposit, and HDFC Dream Deposits. Instead of a single fixed installment every month like regular FDs, depositors can choose to vary their installment amount and even the number of monthly deposits, with these FDs.
Recurring Deposits – In RD one can invest at a regular interval for a fixed period and receive a lump sum maturity value. Investors can open an RD account online, as most banks allow it. RD comes with a tenure of as low as 6 months and then in multiples of 3 months, to up to 10 years.
Usually, RD comes with a minimum lock-in period of one month. Note that, no interest will be paid to the depositor in the case of premature closure within a month, and only the principal amount is returned to the depositor. The interest rates for recurring deposits are the same is applicable for a regular bank FD. Currently, it is around 6.5 per cent per annum for most tenures of 12 months and above.
The interest rate earned from recurring deposits is added to the depositor’s income and is taxed as per his/her income slab. TDS will be applicable if the interest earned is more than Rs 10,000 a year, including interest on bank deposits.
Post Office Term Deposits – Post office term deposit comes with the tenure option ranging from 1 to 5 years. Hence, this is an ideal option for short term investments, where one can invest in the 1-year time deposit. The current rate of interest rate offered is 6.9 per cent per annum.
Once invested, the returns are fixed and assured, and the interest is paid out annually. For short-term goals, investors could invest in a 1-year time deposit where the interest is calculated quarterly, but payable annually. The government revises the interest rate every quarter, which is applicable only to fresh investments made in that quarter of the year.
One can make premature withdrawals but after 6 months of opening the account. Depositors can also surrender the deposits after that, however, in case of premature withdrawal the amount of interest recovered from the deposit will be at a reduced rate of interest. The interest rate earned from these term deposits is added to one’s income and is taxed as per one’s income slab.
Fixed Maturity Plans – FMPs are close-ended debt mutual funds and consists of various fixed income instruments with matching maturities. A fund manager of such investments, invests in instruments in such a way based on the tenure of the FMP, that all of them mature around the same time. These investments come with a tenure ranging from 1 month to 5 years.
As these investments are predominantly debt-oriented, they provide steady returns over a fixed maturity period, which protects investors from market fluctuations. Even though FMPs are not affected by interest rate volatility, as the securities are held till maturity, the returns, however, are neither fixed nor assured. The liquidity option with FMPs is low, even though they are listed on stock exchanges. Hence, experts suggest one should invest in them only if one is sure to lock-in funds for that duration.
Debt mutual funds – Debt funds are for investors who want regular income, but are risk-averse, as this investment option is less volatile and, hence, are less risky compared to equity funds. Additionally, they also score higher than equity mutual funds in terms of safety. Hence, if you want to invest in market-linked investments for less than 1 year, you can choose from either low duration debt fund or money market debt funds.
The low duration fund lets investors invest in Debt and Money Market instruments with a maturity of the underlying securities between 6 to 12 months. In the case of money market funds, the investments are made into Money Market instruments with a maturity of the underlying securities up to 1 year.
The returns in debt mutual funds are, however, not assured nor fixed. Currently, investors can earn about 7 to 9 per cent per annum. The main point is the liquidity of these investments, as with debt funds liquidity is high and units can be redeemed in a quick time.