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Best Investment Plans for Three Years

Short Term Investment Options for Three Years

An investment done for less than five years of the span is called a short term investment. Sounds simple though but is as significant as a gem out of a treasure box since it carries a risk adjusting and more satisfactory value to the bearer. Investors look out for short term investment plans to meet up their near future financial obligations that quench their instinct of taking low risk. In the words of Warren Buffet, “Rule no. 1, never lose money and Rule no. 2, and never forget rule no. 1.”

The above-mentioned quote readily applies to the investors looking out for broad financial markets with varied options yet choosing up fruitful investment plans. Reason being, investments adhering to three years of lock-in period are predictable in nature in terms of their “return on capital” and in terms of “safety of capital” which is a risk and that is what holds the concern of investors. Since short term investments are done for a limited timeline, the following are some of the reasons to choose them.

  1. Meeting near future unavoidable expenditure such as down payment of the house, children’s education, buying a new asset such as a vehicle, etc. Such requirements cannot be postponed and funds are necessary.
  2. Long term investments definitely yield higher returns but also bear the high risk and near future requirements may seem difficult to accommodate. Moreover, short term investment plans offer a diversified financial portfolio.
  3. A short term investment tenure can even be of 12 months.
  4. There are higher liquidity, low risk, and optimum returns. According to the Financial Industry Regulatory Authority, stocks generally yield 10% per year for long term investments but what if the stock prices fluctuate. It will be of no good use.

After reading Top Investment Blogs an investor takes up the decision to Invest money based on many crucial factors such as income, cash flow, savings, family’s financial requirements, assets and understanding of financial tools. Currently, the financial market offers a number of investment options. Following are some of them.

Best investment options

  1. Debt Funds: Debt funds are investments in fixed income securities that are issued by the government such as government securities, corporate bonds, tax-exempt bonds and treasury bills etc. These are called fixed income securities because the interest is pre-decided and also the time they will mature is also known to the investors. They offer no less than 4% to 7% of returns. Debt funds are more suitable for low-risk bearers and gain an edge over fixed deposits as debt funds are more tax efficient also there can be partial as well as full redemption of debt funds.

Indexation Benefit- Debt funds enjoy indexation benefits wherein, the investor can either opt for paying flat 10% of tax of capital gains on the sale of debt funds or pay 20% of the capital gains.

  1. Liquid Funds: Liquid funds are one of the most risk-free investment options almost negative as the maturity period doesn’t exceed for more than 91 days. Liquid funds enjoy benefit over savings account due to the higher returns and instant redemption by the banks without any exit load.

Indexation Benefit- Liquid funds attract taxes on the capital gains yielded by them. If the funds are sold before three years investor needs to pay short term capital gain taxes. However, if the funds are kept for more than three years then 20% tax will be levied on long term capital gains with the indexation benefit.

  1. MIP (Monthly Income Plans): Monthly income plans implies to an investment for the investors who are way too conservative and want to have a minimalist risk such as retirees, housewives, people looking out for extra income or old age people to sustain a steady income. As the name says, MIPs don’t offer a monthly income. Almost 70% to 80% part of the total amount is invested in debentures or government securities and rest is invested in equity. Under this scheme, dividends are declared when the company has sufficient profit and the market is in a boom period, not some monthly income. Under the ‘growth’ scheme the profits are added back to the net asset value of the scheme to boost the growth.

Indexation benefit- If the investments are locked in for three years then capital gains are taxed at 20% but are eligible for indexation benefits that help in bringing down the tax burden

  1. FMP (Fixed Maturity Plans): These are closed-end debt funds. Unlike liquid funds, these schemes also invest in fixed income securities like corporate bonds, government securities but they come with a lock-in period so investment can only be made during the initial period itself just like a fixed deposit, but offer better returns than fixed deposits.

Indexation benefit- FMPs are more tax efficient.

Other than the listed options there are many other short terms investment plans such as gilt funds, national savings certificates, arbitrage funds, recurring deposits, investment in gold/silver or ultra-short term funds. It all demands a call from the investor’s side to analyze well and then go ahead.

**INDEXATION BENEFIT: Indexation is the cost indices regulated by the government to manage and regulate the taxes also to prevent the returns on debt funds from draining out simply by taxes levied. It helps in the price inflation of debt funds thereby lowering down the tax liability.

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Thursday, 04 June 2020

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