There is a plethora of investment options for investors to choose from. However, only those who are good at financial planning find it easier to come with a decisive investment strategy. Most investors focus on goal based investing as it becomes easier for one to target his / her short term or long term financial goals. Investment planning is easier when you have a defined set of goals. Of course, our life’s goals might change from time to time, but certain goals remain to poignant and investors must indulge in systematic investing if they have to find success with growing their existing financial wealth. Once you have a defined set of goals, the next thing for investors to do is understand their appetite for risk. Especially if you are investing in market linked schemes like mutual funds.
Mutual funds are a pool of professionally managed funds where the fund manager buys / sells securities in quantum with the scheme’s investment objective. The goal here is to help the mutual fund scheme beat its underlying index and in turn help fund owners earn some capital appreciation. What a fund house does is that it collects money from such investors who share a common investment objective and invest this pool of funds collectively across the spectrum. A mutual fund scheme, depending on its short term / long term goal, asset allocation strategy and risk profile may invest in company stocks, debt instruments, treasury bills, government securities, call money, certificate of deposits, etc.
While equity funds are considered by investors who have a long term investment horizon and seek long term capital gains some investors have short term goals to meet. These short term goals may vary depending on the individual and their existing liabilities and financial condition. However if you have surplus cash that you received by any means like a policy you invested for the long term matured or if you inherited wealth from your estranged aunt and wondering what to do with the lump sum, you can consider parking this money in a short term fund.
What are short term funds?
Short term funds come under debt mutual funds. Debt mutual funds are open ended schemes which usually aim at generating capital appreciation by investing in fixed income securities that mature within one to three years. This makes them far less volatile to the fluctuating markets.
Park your money in short term funds
Short term funds only invest in those companies that are known to repay their loans and have a proven track record. This makes them almost averse to credit risk. However, investors are expected to understand that this doesn’t make short term funds entirely risk free. There is always some risk involved when it comes to mutual fund investments. Also, be it equity or debt, mutual funds do not guarantee capital appreciation. Hence, even if debt funds like short term funds may seem like a wiser choice for investors to park their money, they should not depend on one asset class for income generation.
A short term fund can be the perfect option for anyone who wishes to add some liquidity to their portfolio or for someone who has lumpsum capital at their disposal. Short term funds are known to offer way better capital appreciation as compared to conservative schemes and it is definitely a better option rather than just letting the money sit idle in your bank savings account. Short term funds give investors an opportunity to park their money for a short term and earn stable returns with relatively lesser risk.
However, investors who are new to investing or financial planning are expected to consult a financial advisor before investing.