That are the perfect funding choices for recurring monetary targets like yearly children’ college charges, insurance coverage premiums, or yearly journey type of targets?
All of us have sure recurring monetary targets. As I discussed above, these could embody our children’ college charges, insurance coverage premiums, journey bills, or home upkeep. In such conditions, what’s the greatest product to put money into, and the way can these targets be managed?
Finest Funding Choices For Recurring Monetary Objectives
When I’m pointing to recurring monetary targets, I imply to imagine that they’re all in short-term nature like inside 1 yr or 2 years.
Because the targets are short-term in nature, you clearly need to take away the fairness part when investing to attain such targets. The one possibility is to discover debt devices. Additionally, please word that for such short-term targets, chasing returns should not be your funding technique. As a substitute, concentrate on security and funding your targets on the proper time with the correct quantity. Due to this fact, don’t chase returns from debt merchandise both. As a substitute, they need to be as protected as doable whereas offering respectable returns across the present inflation fee.
# Financial institution FDs or RDs
Use financial institution FDs when you have a lump sum quantity out there to fund such recurring targets. Nevertheless, if that isn’t the case, then merely use financial institution RDs. As talked about above, don’t search for banks, NBFCs, or small finance banks that provide increased charges of round 0.5% to 2%. It hardly issues for such a brief interval. Therefore, stick with PSU or well-established non-public sector banks the place you’ll be able to make investments.
The one difficulty with financial institution FDs or RDs is that you simply should be certain of when your purpose is due. In any other case, for those who want the cash earlier than maturity, you’ll find yourself paying a untimely withdrawal penalty. If the funding on your purpose comes after maturity, then you’ll have to reinvest once more.
In case your financial institution provides Sweep-In FD, then merely use this selection.
# Liquid Funds
As I discussed in my final weblog put up “Brief-Time period Funding Choices in India 2025“, use Liquid Funds on your necessities inside 1 yr (few months) or so targets simply. The one benefit of Liquid Funds over Financial institution FDs or RDs is that you do not want to specify the maturity. Therefore, for targets which might be short-term in nature however not sure of when it is going to occur, then use Liquid Funds. As you might be conscious, the taxation of Liquid Funds is identical as Financial institution FDs and RDs.
Do word that liquid funds don’t essentially imply protected investments. There have been sure previous cases the place returns took a big hit attributable to fund managers’ selections to put money into low-rated bonds. Therefore, be cautious when selecting liquid funds (Consult with my earlier put up “Is Liquid Fund Protected and different to Financial savings Account?“.
# Arbitrage Funds
In case your purpose is greater than a yr, then you’ll be able to contemplate Arbitrage Funds additionally as they provide tax benefit over Financial institution FDs, RDs, and Liquid Funds. Nevertheless, ensure that for few months these arbitrage funds could generate adverse returns (discuss with my earlier put up “Can Arbitrage Funds give adverse returns?“.
Conclusion – Exploring past these above-recommended classes will not be appropriate for funding your recurring monetary targets. As I discussed above, the first focus must be the safety of the principal and the power to fund the targets correctly relatively than chasing the returns. Don’t attempt to beat the inflation for such targets by exploring different options. As a substitute, the easiest way to beat inflation is by selecting security devices and investing extra to attain monetary targets.
