There may be times where one is in dire need of finances for a goal that is to reach its fruition in a year or two. It is also possible that there is some uncertainty regarding the same, but there is no scope of taking the risk of not having liquid funds at your disposal. It is during these times that investors often resort to planning their investment for the short duration using highly liquid funds with lesser risks attached to it. Wish to know more about these? Read on to find out!
What is an Investment Plan?
An investment plan is a financial blueprint that defines the financial goals of an individual as well as the means to achieve them. It breaks one’s financial goals into time bound goals and ensures that the financial goals are aligned with one’s personal goals.
Short Term Investment Plans
The major objective of short-term investment plans that last for a period of one year is to have capital protection while generating good returns on investment. These investments are highly liquid and they have their specified maturity date to be less than one year.
Why Must One Resort to Investing in 1 Year Investment Plans?
It is a prudent choice to invest in short-term mutual funds instead of choosing to keep his or her money idle as –
- One will have access to liquid funds at the time of emergencies,
- One will face low risks as there is no decrease in the overall investment value by virtue of market returns,
- Short term investments can fetch you some returns
- These funds offer higher transparency and flexibility
- As the corpus is safe and undisturbed even though the interest earned is relatively low.
Best Investment Plan for 1 Year
In order to derive high returns in a short span of one year, the following investment options can be resorted to –
- Debt mutual funds
Especially created keeping in mind individuals with a low-risk appetite, debt mutual funds are ideal short term, safe investments. These funds offer high returns as the corpus is invested into high-rated corporate bonds, treasury bills and government securities, which have a maturity period of 6 months to one year. It is highly liquid and the units are easily redeemable. These are further categorized as low duration funds and money market funds.
- Arbitrage mutual funds
An open-ended fund, Arbitrage Mutual Funds, place the investors’ resources into subsidiaries and money sections with arbitrage chances of value market. It leverages the price differential that exists in the coin and derivatives market to generate returns. There is low risk on investment, the liquidity is high and the investor has the additional benefit of receiving some tax exemption. It is important to note that it has a 65% exposure to equities.
- Recurring deposits
If one seeks to bring financial discipline into their investments and place a fixed sum regularly with the bank, then recurring deposits are a good investment option. At the end of the tenure, the investor will be given a lump sum amount of the principal plus interest and the interest rates are higher than saving bank account. The investment can be made through online and offline modes.
A secure plan to get a respectable return, fixed deposits can be made for investment periods ranging from 6 to 12 months. One has the option of choosing month-to-month, quarterly, half yearly, yearly or cumulative interest.
With investments majorly locked into fixed income securities, fixed maturity plans are not impacted by the volatility of the interest rates in the market. The maturity period of this close-ended mutual fund ranges from one month to five years. These are indexed on stock exchanges and the liquidity is low. The gains made may be taxed at 20% with indexation benefits if it is on profits for more than 36 months.
- Post office term deposits
With the rate of returns being fixed by the government on a quarterly basis, post office term deposits guarantee the investor a respectable return on investment. The interest is paid out annually and premature withdrawal is not allowed prior to completion of 6 months.
An open-ended debt fund, liquid funds are low risk mutual funds that offer the investor a return of 7 to 9%. These liquid funds invest in money market instruments such as term deposits, commercial papers (CP) and T-bills, and have a maturity period ranging from 3 to 6 months. The returns provided are higher than even fixed deposits and hence, these are an attractive option for the investor to invest in. But this mode of investment is not devoid of tax implications.
One has the option of choosing between market-linked investment options and fixed income options. A judicious mix of the two will prove to be more profitable than putting all the eggs in one basket. Invest smartly, keeping in mind your financial objectives, time horizon, and risk level, to make the most of what you have!
Frequently Asked Questions
- What are the risks involved in investing for a period of one year?
Market-related risks, liquidity risk, concentration risk, horizon risk, and foreign investment risk are the most common types of risks involved while investing for a time period of one year.
- Which mutual fund is ideal for the short term?
Large cap mutual funds are ideal for the short term as they provide high returns.
- What are the investment hazards that one has to be mindful of?
The perils that one might encounter while investing is –
- Impulsive investing with little information at hand,
- Not monitoring the investment once the initial amount has been paid,
- Investing not keeping a clear investment goal in mind,
- Applying shortcuts to gain quicker results and taking undue risk in the process.