Investors looking for the right investment options to park their lumpsum sum of money for a short period of time are having a difficult time short-listing thesame. With FDs (fixed deposits) and liquid funds as one of the most prominent short-term investments, investors aren’t that happy with these types of investments. And we wouldn’t blame them –the current FD interest rates are at multi-year lows. The current FD rates for a one-year FD is standing at 5.15% for Punjab and Sind bank. And for investors falling in the highest income tax slabs at 30% tax bracket, this interest rate goes further down. Even liquid funds which are often recommended as an alternative investment option to bank fixed deposits are offering substantially low interest rates at around 4.16% per annum. What’s more, these interest rates would go further down to around 2.9% for investors belonging to the highest income tax bracket as these funds are taxed like debt funds (as per the income tax slab of the investor). So, where should an investor invest a lumpsum amount for a short duration that will offer desirable returns. In this article we will understand three investment options that have the potential to offer decent returns in the short-term without compromising too much on an investor’s risk profile.
Investment options where you can park a lumpsum sum of money for a short period
Below are three investment products where you can park a lumpsum amount for a short duration:
- Savings account
Certain banks are providing interest rates as high as up to 7% p.a. on their savings bank accounts. Examples of such banks include Bandhan bank and IDFC First that don’t have an enormous user base like most commercial banks. As a result, they offer attractive interest rates to their potential customers. The post-tax returns for an investor belonging to the highest income tax slab would stand at around 4.9% p.a. provided that the interest rates offered is 7% p.a.
- Debt mutual funds
Debt funds can be an amazing investment option for investors looking to invest for a short-term duration. An investor can opt to invest in short-term debt funds or banking and PSU debt funds to park a lumpsum for a short-term. Note that if you invest for a period of three years of more in debt funds, you’d also enjoy the indexation benefits offered on long-term capital gains on debt mutual funds.
3. Arbitrage funds
Arbitrage funds are a type of mutual funds that invest their assets in derivative and equities market at the same time to profit from the price differential in these two distinct markets. Fund managers work on the mispricing of equity securities in the futures and spot markets.
Although the above listed investment options are ideal for earning decent returns on a lumpsum investment for a short duration, however, if you are looking to invest for an ultra-short duration of say six months or so, you might want to stick to bank FDs and liquid funds instead of chasing higher returns. Happy investing!