It’s true thatin like stocks and will help you earn tax-efficient inflation plus returns in the long run, but that does not mean you have to put all your eggs in the basket.
Your financial and life goals come with timelines and usually, you want the highest return in any timeline. However,are most suitable for longer period goals, say those which are 7-10 years away or more. For short to medium term goals you are better off relying on debt or you could even combine that with some .
For the money, you need in less than a year
For short period you might think that simply leaving it in your bank account is good enough. Why take on the headache ofjust for 2 or 3 months? 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.
Plus, there isn’t enough time for compounding returns and hence, one feels why to make the effort of keeping the out of the bank account.
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.
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.
You have another goal of travelling across India for a month and that will culminate in three years. While you have a rough idea of the minimum required for the second goal, but the upper limit is not fixed.
The goal for buying a car is better served by assigning debt. For the second goal, using a combination of debt and in such a way that the former takes care of the minimum you want to receive and brings in the bonus. Three years is not a long enough time period for volatility in to smoothen out and deliver consistent returns.
Anything can happen in this period. Ifare managed well and the markets play along, you can make a positive impact on your holiday , else you will make at least the minimum required.
In this manner, for medium-term goals using a combination ofand debt, depending on the defined payout and time period, can be useful.
If you leave it only inhoping for the best possible return, you may be disappointed with the volatility even closer to redemption. Always look for portfolio returns for such goals rather than relying only on one , especially if it is volatile like .