I have a sum of Rs 50,000 and want to invest for three-four years. Please advise where can I put this money.
If you are a risk-averse investor, you should rule out equity for a three-four years investment tenure as their would be a high probability of losing money because of volatile markets. You can invest in Short-term Debt funds for least volatility and they would be certainly better than a bank fixed deposit.
Among debt funds you can opt for short-term funds as they are liquid and more tax-efficient over bank fixed deposits. The maturity of these funds generally doesn't exceed 4.5 years.
The short-term funds category has delivered returns at 8.48 per cent over past three years ending May 7, 2013. The best fund in the category, Sundaram Select Debt ST, delivered returns at 10.24 per cent over the three-year period. The worst performing fund, Sundaram Income Plus, delivered returns at 5.56 per cent over the same period.
If you can tolerate some volatility, you can consider Dynamic bond funds too. Dynamic bond funds invest in fixed income instruments like corporate bonds and government securities. Here the fund manager has the flexibility to manage portfolio according to his view on interest rates. These funds are subject to volatility depending on change in interest rates. A well-rated fund in this category has given returns at 9.9 per cent over a three-year tenure.
Monthly Income plans are another moderate risk option available. These funds invest in debt and equity in 80:20 ratio. A well-rated fund in this category has delivered returns at 9 per cent over three years.
If you withdraw your investments from debt funds after one year, the gains will be taxed at 10 per cent without indexation and 20 per cent with indexation plus applicable surcharge and cess.