Choose mutual fund for your short term goal

During our lifetime, we save and invest to achieve various financial goals. While some goals are far in the future, not all of our financial goals are in the distant future; we might want to achieve some of our goals much sooner, such as within the next year. While these goals, such as saving for an overseas vacation, saving for a new home appliance, etc., might be relatively easier to reach but they require some planning. 

Unfortunately, we primarily focus so closely on achieving long-term goals that we neglect planning for these short-term goals. As a result, we might not have enough savings for these relatively simple goals.One way to ensure that this does not happen is to start investing beforehand so that you can meet your short-term goals easily. While there are many investment options for achieving short-term financial goals, one avenue that is often overlooked when making short-term investments are mutual funds. 

When you are selecting investment options for short-term goals, you need to consider two essential aspects. Firstly, you have to minimize the risk to the capital invested, and secondly, your investments must be easily accessible.  

For example, you invest in fixed deposits which score high on safety but they do come with a lock-in period. If you break your FD prematurely, i.e., before completing the tenure, it would result in penalties that will cause you to fall short of your investment goal. While FDs are safe investments, they lack flexibility when it comes to making redemptions. This is where Mutual Funds emerge as a superior alternative.

However, not all types of Mutual Funds are equally well-suited for making short-term investments. Equity-oriented Mutual Funds are not recommended if you plan to redeem your investments within 1 year. Debt Mutual Funds have potentially lower risk than Equity Funds are a better fit for achieving short-term investment goals. 

Here are Debt Mutual Funds that are ideally suited for making short-term investments:     

Liquid Funds invest in debt instruments with maturity of up to 91 days etc. Due to the short maturity period of these investments, the market price of these securities remains relatively stable. As a result, you can expect potentially low volatility and consistency of returns. It has an exit load if you redeem your units within 7 days of making your investments. Once this 7 day period is over, you can redeem your investments without any exit load or other penalties. Due to the potentially low risk to the invested amount, Liquid Funds are an ideal choice even if you are looking to park funds for only a few days.  

Ultra-Short Duration Funds are open-ended Debt Funds that invest in fixed-income securities with maturity from 3 months to 6 months.This category allows you to easily invest and redeem your investments, ensuring that your short-term savings are easily accessible. Due to the longer maturity as compared to Liquid Funds, these investments carry a slightly higher risk. However it has potential to offer higher returns.

Overnight funds are debt funds that invest in overnight assets or securities with a residual maturity of 1 day. Overnight funds are ideal for those with an investment horizon of one week or less, as you can redeem even after 1day. This flexibility is a big advantage as it is the safest category of debt funds available.

Money Market Funds invest in money market securities such as commercial papers, certificates of deposit, treasury bills, etc., with a maturity of up to 1 year. However, most Money Market Funds attempt to maximize their returns by investing in debt securities with varying maturities of up to 1 year. As a result, this type of Debt Fund might potentially deliver slightly higher returns than the other categories.

To fine-tune your investment, choosing the right mutual fund that is ideal for achieving your short-term goal is must so that the fund can perform in line with your investment objective.

To know more 

*Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.

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