Mostly everybody talks about long-term investment, and most people prefer investing their money in long term investment plans only. However, investment options for 6 months to 1 year come in handy when you have to park excess money.
This can be saved amount for a home down payment or car down payment, and short investments are a great option in such a scenario.
Here are best investment options for 6 months to 1 year:
1. Liquid funds
These are secure funds as these generally invest in certificate of deposits (CD) and government securities. You can exit from these funds at any point in time. If you want to hold your money for 6 months to 1 year, liquid funds are one of the best options, and these also offer an interest rate of 5 to 8 percent every year. Its taxation process is like other debt funds, when you park for more than 3 years, you get indexation advantage. Less than that is taxed at your tax slab.
2. Savings account
One safe way to invest and park your money is through a savings account. You can withdraw this money any time, and savings account gives an interest rate of 4 to 7 percent. In fact, most people deposit their money in a savings account only as their objective is liquidity, not to earn high interest.
3. Liquid plus funds
These are also referred as ultra short term funds and considered risky when compared to liquid funds. This is because liquid plus funds’ main destination of investment is debt securities of short term, generally ranging from 90 days to 1.5 years. When you withdraw liquid plus funds before maturity, you have to pay an exit amount. One thing that investors should keep in mind for debt funds is that if maturity period is long, the interest rate risk is also high. And if credit rating is low, the default risk is high.
4. Short term funds: Short term funds primarily park money in securities and have a maturity period of 1 to 3 years. However, due to longer maturity, these are slightly risky.
5. Arbitrage funds
These funds are a type of equity funds, and buy securities from one market and sell it in second, usually at an increased price. This amount difference becomes the profit. These are riskless, and offer up to 8 percent return on investment. However, arbitrage funds can be more tax efficient and useful when parked for more than one year.
6. Bank fixed deposits
Fixed deposits are the easiest option for many investors. You can get this facility at any bank, and if you have access to internet banking of your savings account, you can simply create fixed deposits (FDs) online. After the maturity or if you withdraw in between, you can receive the amount in your savings account. The maturity period can range from 7 days to 10 years.
7. Fixed maturity plans: Many mutual fund organizations keep issuing fixed maturity plans which have a maturity term of 1 to 3 years. These are almost like fixed deposits, but you can expect a higher return on fixed maturity plans as compared to fixed deposits. These funds don’t have a risk of interest rate as the invested securities have a maturity of equal to or less than that of the fund.
8. Recurring deposits
This is another secure type of investment which is ideal for people who want to monthly invest some fixed amount. Recurring deposits can have the maturity of 6 months minimum and 10 years maximum.
9. Post office term deposits
Post office term deposits are similar to bank fixed deposits, and they offer an interest rate of 7 to 7.5 percent. These are secure because Government of India authorizes post office term deposits. However, avoid investing in fixed deposits of private companies. This is because they may offer higher interest now, but you don’t know what will be the situation of the company in coming years.
Choose the correct investment option according to your requirements. If you don’t want to risk your money in any scenario, then invest in savings account, recurring deposits, fixed deposits, and post office term deposits. However, if you can handle a little risk, try other options. Remember also the tax liability that could be an issue when investing.