Short-Term Investment Tools  To Avoid

Short Term Investments: The Purpose

The purpose of short-term investments is to keep your capital safe while giving you the best possible return in that short span of time.

Flexibility

Since you have a short time frame, your investment should give you stability and flexibility to sell at a short notice. With that in mind, these are the tools to avoid. 

Equity

Equity stocks and MFs are flexible but volatile - prices can move drastically up or down on a daily basis, which is not suited to fulfilling your short term requirements.

Bonds

Bonds are safe, no doubt: but issuers can default on them, failing to pay interest or return the capital invested. They don’t have the flexibility for a quick sale, either.

Govt Small Savings Schemes

National Savings Certificate, Post Office Savings Schemes, PPF etc are all safe, but come with a lock-in period of 5-7 years, which you can’t exit prematurely.

The Solution

For short-term investments, stick to liquid funds, ultra short-term funds and short-term bank deposits for stable returns and flexibility to exit at will.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.