The world today is filled with uncertainties — wars, trade disputes, and constant market shocks. For investors, this flood of news makes it challenging to remain rational. While investment decisions should ideally be made on fundamentals, biases and emotions often play a role. Against this backdrop, short-term investments for goals such as travel or planned expenses become particularly relevant.
SEBI-registered research analyst Rahul Jain, in a recent podcast, outlined five investment options for those looking to deploy around Rs 3 lakh for a short-term horizon of six months to one year. Each option comes with its own mix of risks, returns, and suitability.
1. Savings Bank Account
The “lazy option,” as Jain calls it, is leaving funds idle in a savings account. The returns, typically 2–3% annually, are minimal and fully taxable. While it provides absolute liquidity and safety, it is not a wealth-building choice. This is suited only for those unwilling or unable to actively manage money.
2. Fixed Deposits
Despite being seen as boring, FDs remain popular for assured and predictable returns. Leading banks such as SBI and ICICI currently offer around 6–6.25% per annum for one-year deposits. However, premature withdrawals reduce effective returns significantly — sometimes to around 4% after penalties. Taxation at individual slab rates also reduces the post-tax yield. Small finance banks may offer slightly higher rates, but with higher risk.
3. Corporate Bonds
For investors willing to step up on the risk curve, corporate bonds can offer attractive returns in the 9–11% range, depending on credit ratings. Platforms such as Wint Wealth allow investors to access short-term listed bonds with investment amounts starting as low as ₹1,000.
The key benefit is flexibility: bonds can be chosen based on duration (two to 12 months) and payout frequency (monthly or quarterly). However, the main risk is default risk — if the issuer fails, principal and interest may be at risk. Credit ratings provide guidance: AAA-rated bonds have near-zero default rates, but lower yields, while A-rated bonds offer higher returns with higher risk.
4. Liquid Mutual Funds
Liquid funds invest in short-term instruments such as treasury bills, commercial paper, and certificates of deposit, usually maturing within 91 days. They have historically delivered 6–7% annual returns with very low volatility.
The key advantages are high liquidity (redemption within one working day, or instantly in liquid ETFs) and relatively low risk. These are designed more for safety and quick access rather than maximizing returns, making them ideal for those who may need money at short notice.
5. Arbitrage Mutual Funds
Arbitrage funds exploit price differences between cash and futures markets. Returns, typically 7–8% annually, are slightly higher than liquid funds but not guaranteed. Their advantage lies in taxation: since they are treated as equity funds, long-term capital gains (after one year) are taxed at 12.5%, and short-term at 20% — favorable for investors in the higher income tax brackets.
These funds combine equity (at least 65% of assets) with debt instruments, offering a hybrid structure. They work best for investors in the 20–30% tax slabs, looking for short-term parking with efficiency.
For investors
For short-term goals, investors must balance safety, returns, liquidity, and taxation. Savings accounts and FDs offer security but lower yields, while corporate bonds provide higher returns with default risks. Liquid funds and arbitrage funds strike a balance between returns and tax efficiency, making them attractive for savvy investors.
In a volatile global environment, the choice ultimately depends on an investor’s risk appetite, time horizon, and tax situation.