When you are investing the biggest question that comes to your mind is the time horizon for which you are planning to invest. Even your financial advisor can guide you about the investment products only after knowing the time frame for which you are looking to invest your money. Higher the period of your investment, higher the return you can expect from the investment and vice versa. Investment done for a higher period of time is exposed to different market situations which generally lead into a higher return in the last.
For ex- if you invested in a mutual fund at a NAV value of Rs 12 per unit and you invested Rs 50000 in the mutual fund. Now the number of units you get is 4166 units. At the end of 12 months after investing the NAV value is Rs 13 per unit, so the value of your investment will be Rs 54158, but if this investment was made for three years and the NAV after three years will be Rs 20 per unit, than the value of your investment will become Rs 833320.
Let us discuss some of the best Investment options available in the market
Liquid Funds
These are funds which are readily liquid able i.e. you can take out the money from these funds as and when required. Liquid Funds are funds which invest primarily in call money markets, treasury bills, certificate of deposits and commercial paper. Since they invest in instruments with high credit ratings, there is very low risk. However the return you get in the liquid funds is still higher as compared to saving bank interest rate.
Ultra Short Term Funds
When the time horizon for which you want to invest is a bit longer than you can go for ultra short term funds. Investing in ultra short term funds gives you a good return when the investment is made for a period between 3 months to 12 months. These funds are more volatile than liquid funds but can generate better returns. But these attract exit loads and are slightly volatile though not as much as Income Funds.
Income Funds
When your time horizon for your investment is more than 12 months and up to 3 years, you can consider investing in income funds. Income funds are not meant for low risk people but if you hold onto your investments in the income fund than chances are high that you will earn a better return as compared to liquid funds or ultra short term funds.
Fixed Maturity Plans (FMPs)
By investing in fixed maturity plans, you are kind of investing your money in a fixed deposit. FMP’s investment is further invested in fixed income instruments with good rating and are more tax efficient than FD due to indexation benefit.
Monthly Income Plans
Monthly income plan do not mean monthly income. But they have a potential to deliver higher returns as compared to any other investment option provided the investment made in these funds is kept for a period of at least three years. Monthly income plans are generally a safe bet for the investors, as the investment made in these funds are exposed to only 10% to 25% in equity.
Arbitrage Funds
Arbitrage funds are like equity funds but gives a return on par with liquid funds as a result there is minimum risk involved in arbitrage funds and the return you get is also higher as compared to other investment options. Arbitrage funds have given post tax returns in the range of 8% – 9%.
You can consider investing in arbitrage fund with dividend option and then switch the dividend into a balanced or large cap fund. This should give you tax free return within a time frame of 5 years.
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