Where to invest for the short term?

Assuming you have a lump sum amount and you want to park it for the short term till you decide how to invest for the long term. There are case-based answers to this question depending on the length of the short-term. Let us define your short-term for parking funds based on understanding that liquidity is not a requirement.

The short term can range from a few days to weeks to over a year. Let us take two cases where the short term is under a year and another where it is between one to three years.

Case 1: Short term is less than a year
In this case, the safety of your funds should be the top priority. Hence, you can look to preserve your capital. In this scenario, you can earn better returns than a savings account. For this, you can invest in overnight funds, liquid funds or ultra-short duration funds.

Case 2: Short term is one to three years
In this case, safety is the primary objective along with some scope for growth which can help you optimise returns; given the relatively long duration for parking the funds. You need to look at debt funds that have high-quality holdings and low expenses to optimise your returns. You can also consider parking your funds in a target maturity fund with maturity close to your planned time of use. In these funds, underlying holdings quality is high and the RBI increasing interest rates will be beneficial to your returns. The predictability of returns is an added advantage for short-term parking of funds.

Once this is decided, you can park your lump sum investments in the chosen fund.

Thinking about which particular funds to invest in for the short term? Check out our 'Best Buys' in Value Research Premium.

Suggested watch: How to choose a fund for your short-term goals?

This article was originally published on August 17, 2022.