When a person has excess cash it can invest in shares, bonds and stocks so that tit can get a higher rate of return. Investments which expire quickly within a span of one year are called short term investments. These investments appear in the assets side of the balance sheet of the company. However such short term investments need not necessarily be done only by a company even an individual investor can investor can invest in short term investments. It is smart way of investing as one can get higher returns.
In case you want to invest in an investment which is for a year or maybe up to three years the options that is at your disposal is numerous. Depending on why you need to invest and the amount of risk that you can take you can choose among the various options that are available in the market. For a safe and risk free return the best option is a fixed deposit. However in case you are willing to take a risk then one can go in for investments that will be linked to the market like the mutual funds.
But then what will an investor actually get by investing in a short term investment. To know this in detail let us explain this with the help of an example. Say for instance there is an investor who would like to invest an amount of Rs. 1,00,000 for duration of almost 6 months.
There will be customers who are very worried about the capital that they have invested so the safest option for such kind of customers is a fixed deposit. So let us assume the person is going to invest the Rs.1,00,000 in a fixed deposit for 6 months. The interest rates that are offered by major banks like HDFC, State Bank of India; ICICI is five percent per annum. This 5% is for a person who is investing for 181 days which is approximately 6 months.
The above is only the interest rates of banks. There will be private companies which will be ready to offer more returns but then again there is a risk involved in that. Such investments are called as unsecure investments. There is chance that the customer might lose the principal along with the interest.
Hence in case the option is fixed deposit the best option is a bank which means the interest will be five percent per annum. That means for a period of six months the investor would be getting only an interest of 2.5%.
When the investor is ready to take risks then we can go in for short term investments that are linked to the market like mutual funds. So let’s say the customer is ready to invest the Rs.1, 00,000 for six months in market linked investments then the short term floating rate fund is a good option. These floating rate funds will be made available to the public by big banks or financial companies which are listed in the exchange. They will in turn invest these in instruments which will revise what is called the coupon rate depending on the changes that happen in the market. However the benchmark will be pre determined like Mumbai Interbank Offered Rate (MIBR).
So whenever this benchmark fluctuates the coupon rate of the instrument will also fluctuate. In the current scenario where the rates of interest is ever on the increase the floating rate fund will be an amazing option which will give great returns to the investor. Some of the floating rates that are given by major banks are as follows. UTI Floating rate offers 2.73% for a period of six months.
JM Floating rate offers 2.65% for a period of six months. Kotak Floating rate offers 2.66% for a period of six months. Templeton Floating rate offers 2.62% for a period of six months. HDFC Floating rate offers 2.60% for a period of six months. These are the best in the Floating rates. Their performance is been good and steady. It is also obvious that the rate they provide is more than the fixed deposit rates. However the risk associated with these market funds are higher. When the market fluctuates sometimes the rate also fluctuates so there are chances of getting a return which is lower than the fixed deposit. But one can be guaranteed that the principal amount will be safe.