That are one of the best funding choices for recurring monetary objectives like yearly youngsters’ college charges, insurance coverage premiums, or yearly journey sort of objectives?
All of us have sure recurring monetary objectives. As I discussed above, these could embrace our youngsters’ college charges, insurance coverage premiums, journey bills, or home upkeep. In such conditions, what’s the greatest product to spend money on, and the way can these objectives be managed?
Finest Funding Choices For Recurring Monetary Targets
When I’m pointing to recurring monetary objectives, I imply to imagine that they’re all in short-term nature like inside 1 12 months or 2 years.
Because the objectives are short-term in nature, you clearly should take away the fairness element when investing to realize such objectives. The one possibility is to discover debt devices. Additionally, please notice that for such short-term objectives, chasing returns should not be your funding technique. As a substitute, concentrate on security and funding your objectives on the proper time with the correct amount. Subsequently, don’t chase returns from debt merchandise both. As a substitute, they need to be as secure as attainable whereas offering respectable returns across the present inflation charge.
# Financial institution FDs or RDs
Use financial institution FDs if in case you have a lump sum quantity obtainable to fund such recurring objectives. Nonetheless, 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 supply greater 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 challenge with financial institution FDs or RDs is that you simply should be certain of when your objective is due. In any other case, should you want the cash earlier than maturity, you’ll find yourself paying a untimely withdrawal penalty. If the funding to your objective comes after maturity, then you’ll have to reinvest once more.
In case your financial institution presents Sweep-In FD, then merely use this feature.
# Liquid Funds
As I discussed in my final weblog put up “Quick-Time period Funding Choices in India 2025“, use Liquid Funds to your necessities inside 1 12 months (few months) or so objectives simply. The one benefit of Liquid Funds over Financial institution FDs or RDs is that you don’t want to specify the maturity. Therefore, for objectives which might be short-term in nature however uncertain of when it is going to occur, then use Liquid Funds. As you’re conscious, the taxation of Liquid Funds is identical as Financial institution FDs and RDs.
Do notice that liquid funds don’t essentially imply secure investments. There have been sure previous situations the place returns took a big hit because of fund managers’ selections to spend money on low-rated bonds. Therefore, be cautious when selecting liquid funds (Confer with my earlier put up “Is Liquid Fund Protected and various to Financial savings Account?“.
# Arbitrage Funds
In case your objective is greater than a 12 months, then you’ll be able to contemplate Arbitrage Funds additionally as they provide tax benefit over Financial institution FDs, RDs, and Liquid Funds. Nonetheless, make sure that for few months these arbitrage funds could generate adverse returns (confer 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 objectives. As I discussed above, the first focus needs to be the safety of the principal and the power to fund the objectives correctly moderately than chasing the returns. Don’t attempt to beat the inflation for such objectives by exploring different options. As a substitute, the easiest way to beat inflation is by selecting security devices and investing extra to realize monetary objectives.