Usually, people when discuss investing, all their words and actions are related to either Equity mutual fund or stock market investment and most of them have their investments projected towards the long-term. This is because, in long-term investing, these financial securities help them earn tax-efficient inflation plus returns.
But what they forget in all this is that they do also have short-term money goals that obviously don’t need long-term investments like equity!!
Your every financial goal comes with a time limit, after which you need to attain that goal, and obviously, you need the best return in any timeline. Equity mutual funds are generally meant for goals that are 7-10 years away or more. For short to medium-term goals you are better off relying on debt investments.
For Goals That Have Timelines Less Than A Year!
Generally, people who have goals that have timelines of less than a year, prefer keeping their money in a bank account. This could be for a down payment on a housing loan or paying your child’s annual school fees and so on. Usually, the value of money needed in the near term is fixed and there isn’t much leeway for accepting anything less than required.
They generally take a timeline of less than a year very little time for compounding. However, by leaving money in the bank account you risk the temptation of spending it. Plus, without compromising the stability of returns, you can earn better tax-adjusted returns by putting this money in short-term liquid funds. You have the flexibility of redeeming whenever you need the money.
For The Money, You Need Anywhere Between 1 To 5 Years!
This is a trickier time period to manage. It’s neither too short nor long enough. Determine whether the goal value in this period is flexible or fixed. For example, let’s say you decided to buy a particular car after two years, the value of the vehicle is known and fixed; for this goal your amount is non-negotiable.
While you have another goal of traveling across India for a month and that will culminate in three years. The goal for buying a car is better served by assigning debt investments. For the second goal, invest using a combination of debt and equity in such a way that the former takes care of the minimum you want to receive and equity brings in the bonus. Three years is not a long enough time period for volatility in equity investments to smoothen out and deliver consistent returns.
Anything can happen in this period. If equity investments are managed well and the markets play along, you can make a positive impact on your holiday fund, else you will make at least the minimum required.
In this manner, for medium-term goals using a combination of equity and debt, depending on the defined payout and time period, can be useful.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).