I want to invest some money for the down payment of a flat in the next 1-2 years. What options do I have other than fixed deposits?
-Amol
FMP funds are roughly similar to FDs but have some advantages. If you've frozen the timeframe at any period, you should consider an FMP for the same period. These are expected to deliver little more returns than fixed deposits, and with a lower tax implication. The interest income derived from your fixed deposit will be taxable, but that from an FMP is counted as capital gains and will get the indexation benefit. The difference is generally substantial.
Neither FMPs nor fixed income funds have good liquidity. If you don't want to lock-in your money for any period, but have it available in the time of need, go for ultra short-term bond funds. These invest in securities with maturity ranging between 6-12 months. They can give you returns like fixed deposits with the flexibility that you can take your money out at any time at 2 days notice.
This article was originally published on December 30, 2013.
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