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While long-term investing has always attracted attention, it is equally important to pay attention to Short-term investmentsWhich you can easily convert into cash within 1 to 5 years.
Here are 4 financial instruments in which you can invest your short term money.
1. liquid fund
Financial prudence called for emergency preparedness and COVID-19 increased the importance of a large emergency fund. The corpus should be equal to at least one year’s expenses.
You can invest your money in liquid funds to build a contingency corpus.
These funds invest in money market securities maturing in 91 days and have the potential to deliver slightly higher returns than a savings account.
You can easily convert it into cash, and upon redemption, the money gets credited to your account within 2-3 business days.
2. ELSS
ELSS, or Equity-Linked Savings Scheme (ELSS), is a category of mutual fund that invests most of its assets in equities.
ELSS is the only mutual fund that offers tax-saving benefits under Section 80C of the Income Tax Act, 1961. In other words, investing in ELSS can help you reduce your tax liability.
ELSS has a lock-in of 3 years, which means you cannot withdraw money for 3 years from the date of investment. Lock-in gives your money time to grow, and if you stay invested for a long period, you can get inflation-beating returns.
However, note that ELSS can carry moderate to high risk; Therefore, it is prudent to proceed only if you have a high risk tolerance.
3. Tax Saving Fixed Deposit
You can also invest your short term money in tax saving FDs, which have a tenure of 5 years. As the name suggests, investing in a tax saving FD helps you reduce your taxes.
However, note that, unlike regular FDs, which you can terminate before their tenure by paying a nominal penalty, you cannot do the same in tax-saving FDs. If you feel that your liquidity needs can be met before 5 years, then you can opt for Plain Vanilla Bank FD.
4. Savings Account Offering Higher Interest Rate
You must have seen advertisements of banks offering high interest rate savings accounts. You can consider opening an account with any such bank and invest your money.
Some banks offer monthly interest instead of quarterly payments, which can help you grow your savings and withdraw money when needed.
last word
The above-mentioned short-term investment options can help you meet your short-term financial needs and also reduce your tax liability. Happy investment!
(The author is President and Head of Personal Property, Asset Management)
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