There are three types of goals – long, mid, and short-term. Short-term goals include your near future goals, for which you may require a large sum of lump sum money. This can be something as simple as buying a two-wheeler or paying back your accumulated debt. When it comes to short-term goals, you need to invest in suitable instruments to gain rewards in a short span of time.
Tata Capital’s Moneyfy App offers some great short-term investment options. However, before you choose one, make sure you follow the steps given below:
- Check the risk and reward:
The higher the returns, the sooner you can reach your short-term goals. However, high returns can also carry high risks. So, before you choose an investment instrument for your short-term goals, check the past performance and returns of each option. For instance, bank fixed deposits are a common short-term savings instrument. However, they may offer lower returns than debt mutual funds. Similarly, recurring deposits and post office time deposits may also deliver lower returns than mutual funds or stock market investments. However, the risk associated with fixed and recurring deposits and post office time deposits may be relatively lower.
- Ascertain your liquidity goals:
Liquidity plays a crucial role when deciding the right investment option. If you need immediate access to funds, like in the case of a bank savings account, you would need an investment with a short maturity period. For example, liquid mutual funds have a maturity of a maximum of up to 91 days. Moreover, you can redeem your funds anytime you want, and the transfer takes anywhere between 1 to 3 days only. This can be a good option if you are looking for high liquidity in your investments.
- Check the taxation rules:
The tax levied on your earnings will ultimately determine your gains. So, it is crucial to understand how your investments are taxed. For instance, fixed and recurring deposits are taxed as per the income tax slab you fall into. The interest earned is added to your income for the year and taxed accordingly. The same is the case with post office time deposits too. However, in the case of short-term mutual funds like debt funds, the taxation rules are a bit different.
The profits made from an investment held in debt mutual funds for less than 36 months are taxed as short-term capital gains. These are added to the total income of the year and taxed as per the income tax slab. The profits made from an investment in debt mutual funds held for more than 36 months are taxed as long-term capital gains. In this case, you pay long-term capital gains tax of 20% after indexation.
To sum it up
It is crucial to pick an investment option that aligns with your goal, risk appetite, and preferences no matter what you choose. Doing a comparative study of each option and understanding the pros and cons of each can help you pick a suitable investment vehicle. Once you make up your mind, you can check out Tata Capital’s Moneyfy App and invest through a SIP or in a lump sum accordingly.
