7 short-term investment options to help you go on vacation abroad in 2022-2023
Go on vacation abroad. Isn’t this dream on everyone’s list? Surely it must be. After all, the world is full of both stunning natural beauty as well as the most adventurous and vibrant places that are a must visit for an adrenaline junkie.
And with the new year 2022 just ringing, why not make it an opportunity to start planning to achieve that vacation abroad goal soon? You wonder how? Read on as we unveil some of the short-term investing options that can help you reach that goal in 2022-2023.
1. Hybrid mutual funds
As the name suggests, hybrid mutual funds invest in two or more asset classes, which are generally a combination of stocks and debt in most cases, aimed at providing a balanced component to your portfolio and to achieve the defined investment objective of this program. Hybrid funds can be an ideal short to medium term investment option for those with a low to moderate risk appetite.
These funds have the ability to offer the investor the best of both worlds, equity and debt, and work particularly well for investors who are apprehensive or unwilling to enter a portfolio entirely in stocks or in debt, but wish to benefit from the advantages of the other category not chosen. In terms of risk, they can be considered riskier than debt funds but safer than equity mutual funds.
And to meet the varying risk appetites, investment horizons and financial goals of different investors, each hybrid fund system involves a different proportion of equity and debt investment allocation. There are aggressive hybrid funds, conservative hybrid funds, balanced hybrid funds, dynamic asset allocation / balanced benefits funds, multi-asset allocation funds, arbitrage funds and savings funds. in actions.
Regarding 1-year returns, certain categories of hybrid funds currently offer these returns: Balanced Hybrid Funds (10.46% -32.76%), conservative hybrid funds (3.29% -27.74%), Aggressive hybrid funds (12.10% -77.66%), Dynamic Asset Allocation / Balanced Advantage Fund (7.27% to 37.52%). (According to valueresearch data, for direct plans as of 12/28/2021).
Also read: Worth Explaining – How To Start Your Investment Journey Without Previous Experience
2. Short-term funds
Short duration funds are debt funds that invest in debt and money market securities such that the duration of the fund portfolio is between 1 and 3 years. Therefore, these funds may invest in both short-term debt securities and longer-term debt securities. Income from short-term funds comes from both interest and capital gains.
The 1-year short-term fund returns are currently in a wide range of 3.32% to 15.22% per annum. (According to data on searchvalue, for direct plans on 12/28/2021).
When it comes to interest rate risk, short-term funds carry higher risk than liquid, ultra-short-term, and low-term funds, but less risky than medium and long-term funds.
Also read: Does it make more sense to invest your money in an FD?
3. Small Funding Banks High Interest Savings Account
High interest on savings accounts? Yes, you read that right. Unlike most public and private sector banks which currently offer low interest rates ranging from 2.70% to 3.50% per annum, some small financial banks offer high yield savings accounts, with interest rate of up to 6% -7% pa!
Such high-interest savings accounts can be a suitable savings vehicle for parking your funds for short-term goals that need to be met in about a year. If you are wondering whether these small financial banks are safe or not, read here.
When it comes to interest credit, most banks generally tend to credit interest on savings accounts on a quarterly or monthly basis.
Besides the high interest rates that make it a strong argument to park your money for a short-term investment, there are two other advantages to doing the same. The first is the presence of the DICGC insurance which covers your deposits in a savings account, FD, RD and current account opened with commercial banks programmed under RBI. This cumulative coverage up to ₹ 5 lakh is applicable per bank and per depositor in the event of bank failure.
Second, interest income up to Rs 10,000 in a fiscal year can be claimed as a tax deduction under section 80TTA of the Income Tax Act. Only interest earned above Rs 10,000 would be taxed according to your tax bracket, under “income from other sources”.
4. Fixed company / company deposit
Unlike bank FDs, corporate FDs are issued by NBFCs, HFCs, and other financial institutions, and typically carry higher interest rates than bank FDs, with interest rates of around $ 5. , 10 to 7.48% per year (as of 12/29/2021)
But before you jump on the higher rates of corporate FDs, it’s important to remember that they carry a higher degree of risk than bank FDs. due to the lack of any deposit insurance program unlike bank FDs which are included in DICGC coverage up to ₹ 5 lakh. So if you tend to have a lower risk appetite but want to invest in corporate FDs then go for companies with high ratings like AAA from top rating agencies like ICRA, CRISIL, CARE , etc.
5. Liquid funds
Liquid funds invest primarily in short-term fixed income money market instruments such as commercial paper, treasury bills, certificates of deposit, etc., which have a residual maturity of up to 91 days, offering thus a high degree of liquidity. They generally invest in short-term, good quality and liquid securities, which is why the value of their units tends to be less volatile than other debt funds. Returns come primarily from interest income, and capital gains are generally a minimal portion of total returns.
In addition, because the prices of short-term securities tend not to change as much as long-term ones, the returns of liquid funds are relatively more stable and less risky compared to other debt funds holding securities at higher prices. long term, and fairly stable even through different interest rate cycles in the market.
Currently, the 1-year returns of liquid funds are declining, ranging between 2.40% and 4.28% per annum. (According to data on searchvalue, for direct plans on 12/28/2021).
When it comes to taxation, remember that capital gains on cash are taxable. If the fund is sold before the 3 year completion, a Short Term Capital Gains Tax (STCG) would be levied on the gains, which would be based on which tax bracket you are in. If the funds are held for more than 3 years, the gains would be considered long-term capital gains (LTCG) and taxed at 20%, with an indexation advantage over the initial investment.
6. Ultra-short duration funds
These debt funds invest in debt and money market instruments with maturities of between 3 and 6 months. Although these are low risk funds due to their short holding period, they tend to be slightly higher than liquid funds in the risk range, but still fall under the category of one of the funds. of low risk investment debt.
The 1-year returns of ultra-short duration funds are currently in the broad range of 2.86% to 11.79% per annum. (According to data on searchvalue, for direct plans on 12/28/2021).
7. Short-term funds
Another way to invest for the short term is to use low duration funds. This category of debt fund invests in short-term debt securities with maturities between 6 and 12 months. Compared to overnight or liquid funds, these funds hold assets with a longer maturity and / or lower credit quality, and therefore present an interest rate risk as well as a credit risk. relatively higher. They earn interest and capital gains on their debt securities.
The 1-year returns of low duration funds are currently in the broad range of 3.39% to 16.75% per annum. (According to data on searchvalue, for direct plans on 12/28/2021).
Why not the actions?
Now you might be wondering why equity funds weren’t included in this list despite the boom in the stock market in recent months? The reason for this is the high volatility associated with short-term stocks. While there is no doubt that equities as an asset class have outperformed both inflation as well as most fixed income instruments such as PPF, FD, etc., this is mainly the case at long term, say 5 years or more. This is why stocks are best suited to long-term financial goals.
The high degree of volatility in the short-term stock market makes it a strong argument for avoiding short-term stocks, as the same volatility that earns you quick profits can also result in the recognition of rapid losses.
Also read: Over 50% of Indians fear running out of savings within 10 years of retirement
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