For most people, fulfilling life goals is the primary reason to invest. Goals are generally categorised based on the time one has to accomplish them. Milestones such as children’s education, weddings, and retirement are examples of long-term goals over 5 years away and require advance planning. Short-term goals or needs, however, do not require such extensive financial planning and can be accomplished in 1-2 years.
Fulfilment of short-term needs can enrich your day-to-day life and make it easier. These needs may include many things, such as children’s yearly admission fees, holidays, consumer durables like refrigerators or washing machines, home renovation or repair, gifts for special occasions, insurance premiums, or down payment for a car. The funds required for such needs may range from as low as Rs.10,000 to Rs.5 lakh or more. Since these goals do not require extensive planning, you should choose low-risk instruments to raise the capital required.
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Planning for short-term goals
The first step in planning for this goal is calculating the required corpus. Next is ensuring that you have a relatively stable and regular source of income. Depending on the availability of funds, you can either invest in a lump sum or periodically. There are plenty of financial instruments designed for the fulfilment of short-term needs. Let’s take a look at some of them.
- Debt-oriented hybrid mutual funds
Hybrid mutual fund schemes invest predominantly in debt assets, thus offering stable, predictable returns. The fund invests 65-70% of its assets in fixed-income instruments such as government securities, bonds, debentures, etc., while the remainder is invested in equity.
- Pure debt funds
These mutual fund schemes invest purely in debt assets and are ideal for fulfilling short-term goals. Though stable, the returns offered by such schemes are not as high compared to equity funds.
- Dynamic asset allocation fund
This hybrid fund invests in a combination of debt and equity instruments. However, the asset allocation between debt and equity can be increased to as high as 80% and as low as 20%, based on prevailing market conditions. Such funds provide the benefit of optimal returns with minimum risk and are suitable for short-term goals. They are also known as balance advantage funds.
- Liquid funds
Short-term holdings and easy liquidity make liquid funds ideal for short-term wealth creation. These debt funds invest in short-term securities with a maturity period not exceeding 91 days. They also yield better returns in comparison to regular savings accounts.
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- Recurring Deposits
Recurring Deposits (RDs) are among the most popular and safest options for short-term goals. With fixed monthly contributions, you get assured returns once the deposit matures. Though the returns offered may not beat inflation, they help instil a disciplined savings habit.
- Fixed deposits
The recent rate hikes have helped renew interest in fixed deposits (FDs). Regular FD interest rates are touching 8.00%, with senior citizens eligible for an additional 0.25% to 0.50%. Offering assured returns, FDs are yet another safe investment for short-term financial goals.
Efficient money management is an essential part of financial planning, including that for short-term needs. Calculate the amount you need to fulfil the goal and accordingly plan your investments. Review and adjust your monthly expenses by cutting unnecessary costs and re-direct the saved amount to a suitable investment. Bonuses from salary hikes or incentives can also be invested to reach the goal. Above all, the focus in the short term should be on conserving capital by investing in a disciplined manner.
