Redeeming investments intended for major life goals could adversely affect your financial plan. Under such cases, several flexible aspects of long-term instruments could assist you to satisfy your short-term requirements. There are lots of long term Investment options intended to meet your short-term needs but you need to explore them and choose the one that suits your financial portfolio. It is possible that individual preferences might vary depending on your financial goals. It also happens that you and your friend have diverse financial goals to attain. Therefore, short-term investment choices vary for every individual.
It is known that short term investments are generally accomplished with low budget to generate constant or faintly variable returns. You cannot expect high returns and also the risk involved is low. If you intend to invest big amounts for a shorter interval, it is probable that you could not expect high returns.
Public Provident Fund (PPF):
For investment in PPF, there are three approaches involved. Let’s have a look at them:
Premature withdrawal: The tenure of PPF is 15 years. It is found that partial withdrawal is permitted from the seventh financial year. In this, the amount could be up to 50% of the balance at the completion of the fourth year soon before the year of withdrawal. Alternatively, it can be maximum 50% of the balance at the completion of the year prior to planned withdrawal, whichever is lesser.
Loan: The loan can be availed between third and sixth fiscal years. The amount of maximum loan permitted is 25% of the PPF balance noted at the completion of two years before the year in which loan is required. For example, for the fiscal year 2018-19 as the year of loan application, the PPF balance at the completion of 2016-17 is Rs 3 lakh and entitled loan amount is Rs 75,000
Premature closure: The premature closure is permitted after five years if funds are required for the higher education of children or for treatment of life-threatening illness of self, parents, spouse, or children. In this, interest will be 1% lesser as compared to PPF interest during the instant of withdrawal.
Savings Bank Account:
The easiest way to keep your money safe for long-term is to keep it in a Savings Bank Account. Its greatest benefit is that it involves zero risk percentage. In this, the returns may be less but it is basically a highly liquid investment. The plus point is that you can obtain ready cash whenever you require.
Nowadays facilities such as ATM cards and net banking can effortlessly access your money anytime and anywhere. Generally, the public sector banks have low minimum balance requirement when compared the same with private sector banks. However, private banks usually win the race as far as customer service is considered.
It is known that banks typically offer interest in a range of 4% to 6% on savings accounts. Moreover, interest is credited annually or quarterly inside your savings account in accordance with the bank rules. According to Section 80TTA of Income Tax Act, a person and HUF can claim a take away of an amount up to Rs.10000 on interest obtained.
On your saving account, the interest exceeding Rs.10000 will be taxable in form of “Income from Other Sources” at the existing tax slabs. The particular deduction is in addition to the Tax deduction U/s 80 C which is limited to Rs.1.5 lakhs.
Short term Mutual Funds:
Mutual funds are known to be the instruments that allow investors to make an investment in debt securities, money market securities, shares, etc. Mutual funds function to further invest your capital in debt instruments (known as Debt Mutual Funds) and Equity (known as Equity Mutual Funds).
Debt funds are usually a secured option due to their fundamental asset is debt. Depending on historical data, it is known that Equity funds yield comparatively higher returns and this is quite true if money is invested for a long duration. Among many different Investment options, it is true that mutual funds are subject to market risk. This is because there is always a certain degree of risk linked to this investment option.
Senior Citizens’ Saving Scheme (SCSS):
SCSS investment option comes with tenure of five years; however, in this, the premature closure is permitted after the initial and the next year. In this option, penalty charged is 1.5% of the deposit post the completion of first year and it 1% of the deposit after the second year.
In order to meet short-term money needs, there are many Investment options but Arbitrage Funds are considered as a recommended option for conservative investors. There are few people who are aware of it. In this, the fund manager purchases a stock (i.e., shares) in cash and later sells them in the future market. The two differ based on your return on investment. The profits are obtained by making the most of the price differences between financial instruments in these two markets.
Employees’ Provident Fund (EPF):
For purchasing/constructing a house with the help of a registered society, the EPF subscribers are permitted mid-term along with partial withdrawal. It is important that the subscriber must have contributed to the particular fund for a minimum period of three years. Besides, they have to be a member of a registered housing society with a team of minimum 10 members. In this option, the eligible amount is 90% of EPF balance, and this along with the spouse, must be minimum Rs 20,000.
Fixed and recurring deposits are known to be highly liquid and they can also be withdrawn prematurely. Discussing the penalty for premature closure, the interest would be in the range of 0.5% to 1% (below rate valid to the particular period for which the deposit has been upholding). Alternatively, the interest would be in the range of 0.5% to 1% below original rate. The one which is lower will be considered.
Short-term money need may arise anytime and for that long-term Investment options discussed above are very useful. You can go for any one of them based on tenure, interest rate, available capital, etc.