A one-year investment strategy can provide steady returns, but it will be less than a long-term investment plan. Discover the mutual fund opportunities available for short-term investing horizons by Nationlearns. To begin, consider why people should invest in short-term mutual funds. It is preferable to invest in short-term mutual funds rather than leaving the money idle because short-term would help the people to gain good and consistent returns, will have no losses as an investor, money will be secure, and will have plenty of liquidity during emergencies. A risk-averse person looking to invest in the right mutual fund plan for a year must consider the following investment plans:
a. Debt Fund: The primary justification for investing in debt funds is to gain a consistent interest income as well as capital appreciation. The interest rate and maturity date of debt securities are predetermined by the issuers. As a result, they are often referred to as fixed-income shares.
b. Arbitrage Fund: This form of mutual fund profits by leveraging the gap between derivatives and cash. The returns are determined by market fluctuations. Arbitrage Funds are a good place to put the money if an individual has extra cash, a low-risk tolerance, and want to take advantage of tax breaks. For tax purposes, these funds are classified as stock mutual funds. Short-term capital gains on arbitrage funds sold within a year must be taxed at 30%, whereas long-term capital gains on arbitrage funds sold after a year must be taxed at 10%.
c. Fixed maturity plans or FMPs: Plans with a fixed maturity Invest in corporate bonds, CDs, commercial papers, capital market instruments, treasury debt, and non-convertible debentures with high yields. This form of plan’s most common tenures varies from thirty days to 180 days, 370 days, and 395 days. FMPs are available as dividend or growth mutual fund alternatives. If it is an established maturity dividend scheme, the fund house will charge Dividend Distribution Tax (DDT); however, if it is an FMP growth option, capital gains tax will apply with the advantage of indexation.
d. Treasury bills or T-bills: These are money-market instruments declared by the central government with maturities of up to a year. T-bills are available in three maturities 91 days, 182 days, and 364 days. They are issued at a reduced price and ransomed at face value. For example, an Rs.100 Treasury Bill can be obtained for Rs.95. Buyers are billed Rs.100 on the maturity date. Treasury bills are both risk-free and highly tradable.
e. Short-term and Ultra-short Debt Funds: Short-term debt mutual funds are plans for maturities ranging from one to three years. These are low-risk funds that provide investors with modest returns. Because of their common investment terms, short-term debt funds are often contrasted to fixed deposits (FDs). Unlike FDs, these loan funds do not incur penalties if repaid before maturity. Ultra-short debt funds are mutual fund schemes with maturities ranging from three to six months. If people want to save for a few months, there are no drawbacks. This form of the fund has marginally higher yields than FDs.
f. Liquid Funds: An open-ended debt fund is a form of mutual fund that invests in money market instruments such as T-bills, commercial papers (CP), and term deposits. Liquid Funds have maturities ranging from 3 to 6 months. It is a low-risk mutual fund scheme that provides higher returns than your bank’s FDs or savings account.
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