Going abroad for a vacation. Isn't this dream a part of everyone¡¯s bucket list? Surely, it must be. After all, the world is full of both the mind-blowing natural beauty as well as the most adventurous and happening places which are a must-visit for an adrenaline junkie.??
And with the new year 2022 just rung in, why not turn this into an opportunity to start planning towards ticking off this goal of a vacation abroad soon? Wondering how? Read on as we unfold some of the short term investment options that can help you achieve this goal in 2022-23.
As their name suggests, hybrid mutual funds invest in two or more asset classes, which is usually a combination of equity and debt in most cases, aimed to offer a balanced component to your portfolio and achieve the set investment objective of that scheme. Hybrid funds can be an ideal short-term and medium-term investment option for those having low to moderate risk appetites.
These funds possess the ability to provide the investor with the best of both worlds, equity and debt, and especially work well for investors who are apprehensive or not keen on stepping into an entirely equity or debt portfolio, but wish to avail the benefits of the other not chosen category. In terms of risk, they can be considered riskier than debt funds but safer than equity mutual funds.
And to cater to varying risk appetites, investment horizons and financial goals of different investors, each hybrid fund scheme involve a different proportion of equity and debt investment allocation.? There are Aggressive hybrid funds, Conservative hybrid funds, Balanced hybrid funds, Dynamic asset allocation /Balanced advantage funds, Multi-Asset Allocation funds, Arbitrage funds and Equity savings funds.
As far as 1-year returns are concerned, some of the hybrid fund categories presently offer these returns: Balanced hybrid funds (10.46%-32.76%), Conservative hybrid funds (3.29%-27.74%), Aggressive hybrid funds (12.10%-77.66%), Dynamic asset allocation /Balanced advantage funds(7.27%-37.52%).?(As per data on valueresearch, for direct plans as of 28.12.2021).
Also Read:?Worth Explains- How to Kickstart Your Investment Journey With No Prior Experience
Short duration funds are debt funds that invest in debt and money market securities such that the duration of the fund portfolio is between 1 to 3 years. Hence, these funds can invest in both the short term as well as slightly longer-term debt securities. Earnings for short duration funds are from both interests as well as capital gains.
1 Year returns of short duration funds at present fall in the wide range of 3.32%-15.22% p.a.?(As per data on?valueresearch, for direct plans as on 28.12.2021).
As far as interest rate risk is concerned, short-duration funds involve higher risk than liquid, ultra-short duration, and low duration funds but lower risk than medium and long duration funds.
Also Read:?Does It Make Sense To Invest Your Money In A FD Anymore?
High interest on savings accounts? Yes, you read that right. Unlike most public and private sector banks that are at present offering low-interest rates ranging around 2.70%-3.50% p.a., there are some small finance banks that are offering high yield savings accounts, with interest rates going as high as 6%-7% p.a.!?
Such high-interest rate savings accounts can be a suitable savings instrument to park your funds for short term goals that are meant to be achieved within a year or so. If you are wondering if these small finance banks are safe or not, read here.?
As far as credit of interest is concerned, most banks usually tend to credit the interest on savings accounts on a quarterly or monthly basis.?
Besides the high-interest rates that make it a strong case to park your money in them for short term investment, there are two more benefits of doing the same. First is the presence of DICGC¡¯s insurance that covers your deposits in a savings account, FD, RD and current account opened with scheduled commercial banks under RBI. This cumulative cover of up to ? 5 lakh is applicable per bank per depositor in the event of bank failure.
Secondly, interest earnings of up to Rs 10,000 in a financial year are eligible to be claimed as tax deduction under section 80TTA of the income tax Act. Only the interest earned above Rs 10,000 would be taxed as per your tax bracket, under the head ¡°income from other sources¡±.???
Unlike Bank FDs, Company/Corporate FDs are issued by NBFCs, HFCs and other financial institutions, and generally involve higher interest rates than bank FDs, with interest rates around 5.10%-7.48% p.a. (as on 29.12.2021)
But before hopping onto the higher rates of company FDs, it's important to remember that they carry a higher degree of risk than bank FDs due to the absence of any deposit insurance program, unlike bank FDs which are included under DICGC¡¯s cover of up to ? 5 lakh. So, in case you tend to have a lower risk appetite but wish to invest in corporate FDs, then go for the companies having high ratings, such as AAA from top credit rating agencies like ICRA, CRISIL, CARE etc.?
Liquid funds predominantly invest in short-term fixed-income money market instruments like commercial paper, treasury bills, certificates of deposit etc. which have a residual maturity of up to 91 days, hence providing a high degree of liquidity. They usually invest in the short term, good quality and liquid securities, hence the value of their units tend to be less volatile than other debt funds. The returns are primarily earned from interest earnings, and capital gains generally form a minimal part of total returns.
Also, as prices of short©\term securities tend to usually not change as much as long term ones, the returns of liquid funds are relatively more stable and less risky as compared to other debt funds holding longer-maturity securities, and fairly stable even across different interest rate cycles in the market.?
At present, 1 Year returns of liquid funds are on the lower side, falling in the range of 2.40%-4.28% p.a.?(As per data on?valueresearch, for direct plans as on 28.12.2021).
As far as taxation is concerned, remember that capital gains on liquid funds are taxable. If the fund is sold before completion of 3 years, a short term capital gains (STCG) tax would be levied on the gains, which would be according to the tax slab you fall in. In case the funds are held for more than 3 years, the gains would be considered as long term capital gains (LTCG) and taxed at 20%, with indexation benefit on the original investment.?
These debt funds invest in debt and money market instruments having maturity periods between 3 months and 6 months. Although these are low-risk funds owing to their low holding duration, they tend to be slightly above liquid funds in the risk spectrum, but still fall into the category of one of the low-risk investment debt funds.
1 Year returns of ultra-short duration funds at present fall in the wide range of 2.86%-11.79% p.a.?(As per data on?valueresearch, for direct plans as on 28.12.2021).
Another way to go for short term investment is through low duration funds. This category of debt funds invests in short term debt securities involving maturity between 6 to 12 months. When compared to overnight or liquid funds, these funds hold assets of longer maturity and/or lower credit quality, and hence have a relatively higher interest rate risk as well as credit risk. They earn through interest and capital gains from their debt securities.?
1 Year returns of low duration funds at present fall in the wide range of 3.39%-16.75% p.a.?(As per data on?valueresearch, for direct plans as on 28.12.2021).
Now, you might be wondering why equity funds were not included in this list despite the equity market soaring high in recent months? The reason is high volatility associated with equities in the short term. While there¡¯s no doubt that equity as an asset class has outperformed both inflations as well as most fixed income instruments like PPF, FD, etc, that's the case mostly in the long term, of say 5 years or over. That's why equities are best suited for long term financial goals.?
The high degree of volatility in the stock market in the short term makes it a strong case to avoid equities for the short term, as the same volatility that fetches you quick profits, can result in the booking of quick losses as well.
Also Read:?Over 50% Indians Fear Running Out Of Savings Within Just 10 years Of Retirement
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