Thread by @ETMONEY

Picking an investment option for your short-term goals (around 2 years) isn’t that easy.

On a 2-year investment, your returns can fluctuate from nearly 7% to 10.4%

So, it all depends on the investment avenue you pick.

A 🧵 to help you find the right options for you.

Most of us despise volatility in our short-term investments.

What we like is stable returns for our near-term goals.

Thus, we have picked 4 types of investment options that can tick this box.

Let’s look at them in detail.

1. Fixed deposits

#Government banks like SBI offer 6.8%-7% interest on their 1-2 year FDs.

Some FDs can give you more than that.

For instance, on ET Money, you can get up to 7.55% for a two-year fixed deposit.

2. P2P lending

If you are willing to take more risks than FDs, you can invest some money in P2P products.

For example, consider diversifying your debt portfolio with ET Money Earn, which can help you earn up to 10.4% for a 2-year investment.

Check how it will work 👇

When you invest in ET Money earn, you lend money to creditworthy borrowers and earn interest.

To lower your risk, your investments are spread among 100-400 verified and creditworthy borrowers.

For this, ET Money has partnered with LiquiLoans , which is regulated by the RBI.

3. Arbitrage funds

Where will you invest the money earmarked for an emergency fund?

Typically, investors keep part of the money in sweep-in fixed deposits and some in liquid funds.

But since the change in the taxation of debt funds, arbitrage funds are an option to consider.

These funds are more tax efficient than liquid funds now.

If you withdraw within one year of investing, you need to pay a 15% tax on gains.

After one year, the tax is 10% on gains exceeding Rs 1 lakh in a financial year.

Now, here’s something you need to keep in mind.

Arbitrage funds are not a replacement for FDs.

Instead, they are a substitute for keeping money in the bank account.

These funds have had an average return of around 4.7% in the past five years.

4. Debt funds

After April 2023, debt funds have lost some of their tax advantages.

They are taxed just like FDs.

So, why should you even consider this?

Well, there are multiple reasons.

For up to two years, debt funds never had any tax advantage.

Only their long-term gains (after 3 years) enjoyed some tax benefits.

So, the tax argument doesn’t really hold.

Now, let’s look at reasons why debt funds are still relevant.

In the current interest rate environment, FDs may look attractive.

But if interest rates fall, debt funds can offer better returns than FDs.

For instance, remember the FD rates (around 5%) we witnessed during COVID-19.

Debt funds did better during that time.

Also, what if you need the money anytime within two years?

Premature exit from FDs can be costly due to the penalty.

So, if you could need part of your investments at some uncertain time in the future, debt mutual funds could work for you.

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