Top Short-Term Investments: Mutual Funds for 2024

What do you do with the leftover cash in your account? Splurge, invest or just keep it idle? Deciding what a universally wrong choice for everyone is may not be viable. Some of the best lump sum investment options for the short term can always help us treat our idle money in a better way. 

You might be wondering what this has to do with short term investments. A short term investment is a money that you need in a short period of time. 

You know it beforehand that you will not be able to give a short term investment for a longer time frame. Considering that, it is clear that the investment product has to be one which has the least fluctuations in a shorter time frame.

You may invest in mutual funds for short term goals. It is of a popular opinion that equity investments show wider fluctuations in the short term. A longer time frame in equity investments helps widen fluctuations and get the real value of your money.

Debt mutual funds have several categories under them. Debt funds are funds that invest in bonds or money market instruments with varying maturity levels. Types like liquid funds, ultra-short and short term funds invest in papers have a maturity less than three years.  There is a best mutual fund to invest for 3 months and for a couple of years as well.

Disclaimer: Below we have sorted mutual funds from the debt fund category which invest in short term papers. The funds have been chosen based on the highest returns in the past three years. This is for information purposes only. This is not a recommendation to pick returns as a parameter or to pick the following type of funds only for short term investments. The list was last updated on January 18, 2021.

Liquid Funds

Liquid funds is that category of debt funds that invests in papers with a maturity of up to 91 days. The nature of the holdings of liquid funds has the least tenure amongst all debt fund categories. 

• Union Dynamic Bond Fund
• Quant Liquid Direct Plan
• IDBI Liquid Fund
• Franklin India Liquid Fund
• Mahindra Manulife Liquid Fund

Ultra Short Term Funds

Ultra short term funds invest in bonds which have a tenure of three to six months. This is according to a Securities and Exchange Board of India (Sebi) definition.

• PGIM India Ultra Short Term Fund
• ICICI Prudential Ultra Short Term Fund Fund
• DSP Low Duration Fund Fund
• Mahindra Manulife Low Duration Fund Fund
• Aditya Birla Sun Life Savings Fund

Short Term Funds

Short term funds are mutual funds that invest in papers which have a tenure of one to three years.

• ICICI Prudential Short Term Fund
• Kotak Bond Short Term Fund
• HDFC Short Term Debt Fund
• IDFC All Seasons Bond Fund
• Axis Short Term Fund

What is meant by ‘short’?

What is a short term investment? A short term mostly is any period up to three years. Most investors consider three years or more as long term. Even within three years, there may be some investors who want to invest for a couple of months only. There may be times when you invest money considering it as emergency funds; not knowing if you need it in a couple of days, months or years. Knowing that it is short term helps you to invest accordingly so that you don’t risk losing money. 

A wrong investment is more dangerous than no investment because you risk the loss of capital. Hence we must pay close attention to how and where are we channelising our money.

Factors to consider before making a short term investment

How ‘short term’ is your ‘short term’: Like mentioned above, knowing when you need the money is essential. In case you just want to invest some idle money for emergency usage and not for a known requirement, mutual funds have products for this as well. All you need to do is to study your investment requirements. Define what ‘short term investment’ means to you before investing in mutual funds for short term goals.

There can be variations within the short term category as well. There are short term mutual funds for 6 months and 2-3 years as well. There can be different kinds of short term investments with varying risk types. Therefore, this can never be over-stated but understanding your investor profile and risk appetite is the key to making the right investments.

Risk: Many advocate the idea that short term investments should be low risk in nature. Generally, a long term investment helps give your portfolio the time to even out the loses. Although a shorter time frame has that disadvantage. Hence it is said that short term investments should be made in low-risk assets.

Goals: With deciding the time horizon and risk, goals come as a by-product. If you know why you are investing, it is easy to segregate money across investment products. Before opting for the best lump sum investment options for the short term, knowing what your goals are is important.

Conclusion

Clarity and self-introspection are few of the central tenets of correct investments. Knowing that you want to invest, when would you need the money and why you want to invest is vital. Short term investments can be used for emergency funds, short term needs or money lying idle as well.

Happy Investing!