: Mon Nov 07 2011, 03:05 hrs
There are plenty of short-term investment options available in the markets. The choice of instruments essentially will depend upon factors such as individual risk taking ability, liquidity situation, investment quantum, etc. Besides, short term investing essentially involves goal based planning e.g. looking to buy a car, down payment for a house etc. Let us now dig deeper into various short term instruments, segregated by individual risk-appetite.
Options for Conservative Investors
To start with, if goals are short-term, conservative approach is best suited as aggressive investing always needs ample time to show returns and aggressive short term investing puts capital at risk.
Fixed Deposits: Interest rates today, are near their all-time high levels. Private sector lenders including Lakshmi Vilas Bank (LVB) and Dhanlaxmi Bank are amongst the most generous ones. While 1-2 years deposits with LVB will fetch you 10.5 per cent, a 300-day deposit with Dhanlaxmi Bank will earn you an attractive 10 per cent. Also, deposits ranging 6-12 months are offering anywhere between 8-9 per cent.
Recurring deposits: RDs make sense if one does not have lump sum funds, but have enough monthly inflows to invest periodically. The interest rates on RDs are higher than savings accounts and almost similar to those on FDs and typically they are available for 6-24 months tenure. RDs are particularly useful for accumulating funds for special goals e.g. if you plan a vacation worth R 60,000 after 6 months, you can do so by creating a 6 month RD putting R 10,000 every month rather than taking a R 60,000 hit at one go.
Liquid/ Ultra Short Term Funds: A specialised form of mutual funds that invest in fixed income instruments including treasury bills, commercial paper (CPs), certificates of deposits (CDs), securitised debt etc., for extremely short-term ranging from 90-365 days. These funds provide capital protection besides liquidity and returns are better than savings bank accounts (4 per cent).