Struggling To Save To A Big Amount? Here Are Some Options You Can Prefer

The global Covid-19 pandemic has left the world and the economy shook. With new challenges, such as job insecurity, dented incomes, health risks, etc., the population needs to tread carefully and be at least financially prepared for emergencies.

People may require emergency funds now more than ever, which means short-term investing is critical at the moment. Considering investing funds and becoming more stable financially? Learn about these five great short term investment options whether you’re in job, doing small businesses or you’re an established professional:

1. Recurring Deposits

Banks allow their customers to deposit a fixed amount every month in their recurring deposit account and earn interest on the savings as per the rate currently applicable. An account can have a tenure a minimum of 6 months and a maximum of 10 years. The interest earned on the savings in a fixed deposit account is taxable.

Advantages

• It offers the flexibility of setting aside a certain amount every month which isn’t too heavy on the pocket.
• It offers attractive interest rates.

Disadvantage

• The monthly investment amount cannot be changed once decided.

2. Online Chit Fund

A chit fund is a very popular short-term investing plan that brings investors, savers, and borrowers together. With the growing digitization initiatives, the digital lending apps are in more demand.

They involve a group of peers who create a pool of money every month by investing a fixed amount per member. The members of the group then bid for the pool money; the highest bidder gets the amount and the bid money is shared amongst the remaining members. Chit funds are not taxable.

Advantages

• It allows taking out an emergency fund without any paperwork from right where you are.
• It allows for making a big purchase without having to save for several months. You can make a big purchase with the pool money early in the tenure and then pay monthly installments for the chit fund later.
• Based on the group members’ requirements, the bidding for the interest rate can go over 30% in many cases.
• With the growing digitization initiatives, the online digital lending apps such as, Money Club – online chit fund platform has made chit fund easily accessible and more secure.

Disadvantage

• There is no guarantee of fixed returns.

3. Mutual Funds

Mutual fund companies accumulate money from many people and invest it in bonds, stocks, and other assets. Each investor has shares, which represents their part ownership in the total fund.

The benefit with the income it generates as per the shares they hold. Mutual funds distributions are taxable.

Advantages

• Mutual funds allow investing in one or more funds, and diversification reduces risk.
• Mutual fund companies charge investors a small fee to hire professional portfolio managers who help investors in managing their investment portfolio wisely.
• Easy to understand and handle.

Disadvantage

• The portfolio manager may abuse their power and fix the books, leading to loss of the fund-holder.

4. Fixed Deposit

In a fixed deposit (FD), an amount is deposited in the account for a fixed time period. The customer earns interest on the savings at the end of the tenure. Banks offer a higher rate of interest on fixed deposit accounts than on savings account.

The income from a fixed deposit is fully taxable. If the amount earned is greater than INR 40,000, 10% TDS is deducted on withdrawal.

Advantages

• Investors get steady returns.
• You can opt for a monthly interest payout or a lump sum return at the end of the tenure.
• Market fluctuations are low.

Disadvantage

• Investors require paying a penalty fee on withdrawing emergency funds.

5. Liquid Fund

Liquid funds are excellent for meeting short-term financial goals. They invest money in government certificates, securities, treasury bills, etc. and are hardly associated with any risk. Liquid funds are eligible for tax and are beneficial for investors who may have surplus funds that need to be parked.

Advantages

• Security of investment since funds are invested in money market instruments.
• Liquid funds have a higher rate of interest (up to 7%).

Disadvantages

• Liquid fund is not a great option to invest emergency fund since getting control of your money takes 2 to 3 days.
• Liquid funds are eligible for long-term capital gains tax if held for more than three years.

6 Tips to Save More Money

You can follow below tips when you start planning to save money in your starting days.

1. Know your goals

Know both your short-term and long-term goals to be able to save systematically. Buying a house can be a long term goal while buying a car within a year can be a short-term goal.

2. Spend budget-wise

Plan a monthly budget and make it a point to stick to it no matter what. This can mean avoiding certain luxuries.

3. Save first

Set the amount you wish to save aside before spending.

4. Start small

Start with a small amount and then keep adding to that fund.

5. Avoid debt

Avoid debt and avoid paying interest.

6. Do not waste money

Do not splurge. Keep your goals in mind. It will save you from emergency debt and financial crunches at the month-end.

It cannot be stressed enough that investing money wisely is more beneficial than just saving it. So, analyze your options and talk to a financial expert, if needed, to find out what’s the best short-term investment option for you to Save To A Big Amount.