Short term goals are important as we see them close in our vision about future! Be it buying a house, or a car, or enrolling for some new education course.
Our goals define their tenure and so we need to choose suitable mix of investment options to invest.
Short term goals are typically for a period of 6 months to 3 or 4 years. This period helps us to short list investment options.
These goals call for some familiar investment options other than equity.
These options have different categories & features. They work differently based on interest rate scenarios & market conditions.
Let’s understand, little more about them-
| PARTICULARS | BANK FIXED DEPOSITS | CORPORATE FIXED DEPOSITS | DEBT FUNDS | ARBITRAGE FUNDS |
| How do they work? | They come with fixed tenure with respective applicable rate of interest payable to investor. | They come with fixed tenure with respective applicable rate of interest payable to investor. | They invest in debt papers issued by different entities like Government, Corporates etc as per the scheme objectives & type | These types of funds invest in arbitrage opportunities in the market |
| Rate of return | ranges from 5.5% to 7.8% | Upto 8.5% | Market Linked | Market linked |
| Tax implication | As per income tax slab | As per income tax slab | As per income tax slab | As per Equity mutual funds. |
| Liquidity | Can be withdrawn prematurely with applicable charges | Can be withdrawn prematurely with applicable charges | Can be redeemed anytime | Can be redeemed anytime |
| How one can apply | Online/Offline | Online/Offline | Online/Offline | Offline/online |
| Risk levels | Insurance for invest of Rs 5 lakhs including Principle & Interest Amount both under DICGC | Associated Credit Ratings depict risk levels | Market linked | Market linked |
Simple steps to follow while investing for short term goals:
- First define your ‘short term’:
This simply means, you need to define your investment tenure. This tenure will help you to decide on the suitable investment option.
- Understand the nature of the goal:
Nature of the goal means whether the goal is fixed or repetitive in nature. E.g. Payment of school fees is ‘Goal of repetitive nature’ whereas ‘Planning for vacation after 1 year’ is ‘goal with fixed nature’.
Some goals are such that we can be little flexible in terms of tenure of the goal. E.g Buying some white good.
- Decide the future assumed required amount to achieve your goals:
Though the goal is short term, we need to calculate the future assumed value of the goal. We need to aim at achieving this amount of the goal.
- Decide way of investing:
Way of investing means whether we can invest ‘monthly or at regular intervals’ for this goal or invest in lumpsum. This will also help in selecting a suitable investing option for this.
- Risk levels & appetite:
As mentioned about above sought after investment options, they come with different ‘risk levels’. Our risk appetite must match with risk levels associated with options.
How to design the portfolio?
While investing for short term goals, we need to follow some simple things as follows-
- Get the complete knowledge about the option:
We need to have complete basic knowledge about the investment option that we will choose in. At least details about the above-mentioned points are important to know.
- Liquidity:
Ensure that the money invested will be liquid enough to be redeemed or withdrawn. Avoid choosing any product which comes with a lock in period or with strict terms about redemption even if it offers more rate of returns.
- Suitable mix:
All investment options come with different features. One should choose a suitable mix of the options where he/she can get the blend of returns, liquidity & adequate risk appetite.
Never concentrate your investment in single option if the amount of investment is big enough.
- Review:
Even if the investment can be for the short tenure, one should review the same regularly. Many changes like changes in interest rates, market environment, policy changes can have direct & indirect impact on the investment options that we choose.
- Update the records:
For all the investments made for short term goals planning, we should maintain & update the records about. Registering a Nominee is a must.
These records will help us to stay updated to make any suitable changes in the investment.
So, while keeping one eye on our long-term future, we should plan for our short term goals well!