Different types of mutual funds you should opt for to meet your short-term requirements

Often, we have surplus cash that we want to invest and get a tidy return. But the tricky question is; where to invest our idle money. If we want to get a quick return then the problem becomes more complicated. We have so many options to choose from- equity markets, bullion, real estate, blockchains etc. But all these options do not give quick returns; your investments in these markets will take some time to deliver returns.

At the other end of the spectrum are the short term debt based mutual funds. These are liquid instruments and can deliver good yields in the short term. However, there is a condition here- it is not necessary that all debt based funds would generate value. If there is a short term hike in interest rates, then your yield might suffer a hit.

This article suggests a few types of mutual funds that are good for your short –term requirements. Please note that the definition of a short –term debt fund may vary from one individual to another.

1. Liquid Funds or Money Market based Funds- If you have a sizeable corpus then you might consider investing in money markets. The duration of these money market based funds is very, very short- sometimes it is just a day. In comparison to other funds, money market funds are highly liquid and their yields fluctuate lesser.

2. Ultra Short Term Funds- These were earlier called as Liquid Plus Funds. The maturity period of this kind of mutual funds does not exceed 9-12 months. If you have a surplus fund and won’t mind taking some bit of risk then consider investing here. Asset Mutual Fund Companies invest a high proportion of their corpus in short term debt instruments while the remainder are put in long term instruments. Also called as Cash or Treasury Management Funds, these instruments are preferred by investors who are looking for 1-9 months.

3. Floating Rate Funds- If you would like to ride with the debt market benchmarks then this is the right fund for you. Funds are parked in debt securities that are in tune with the market movement of interest rate of the debt markets. When rates increase , your yield also goes up and when they decline, so does your return.

4. Short and Medium Term Funds- Investors who have a low to medium level of risk appetite opt for this kind of funds. The window period of a typical short to medium term fund is around 3 years. The maturity period of these funds is higher than the Ultra Short Term Funds but is definitely lower than Regular Income Funds. Investors wanting to get returns within a 9-12 month span can consider Short and Medium Term Funds.

5. Corporate Bond Funds- Sometimes investors buy corporate bond instruments that have a short to medium term maturity. Corporates then park these monies in other markets for various purposes like settling their debts or raising new funds. These funds are good for those investors who have a significant appetite for risk and have surplus cash. If you are looking to invest in these funds, then study the backgrounds of the issuer companies. Institutions like CRISIL and other credit rating companies regularly update the markets about the creditworthiness of these companies.

6. Mixed or Hybrid Funds- As the name suggests, these mutual funds combine equity and debt instruments and as such have a considerable risk. You may get a higher return than the regular debt based funds but bear in mind the risk attached.

Monthly Income Plans offered by various Asset Mutual Funds are hybrid in nature as they deploy their corpus in both debt-based and equity instruments. The proportion is 85-90% in debt and the balance in equity. While the debt part strives to give returns, the equity part is geared for long term income. However, it is not necessary that all the MIPs generate monthly incomes to the investors.

To summarise, there are various kinds of short term mutual funds. Some of them have a maturity of a day while others range from 9-12 months. Investors need to take a call what their definition of short term is. Short term debt instruments normally generate high returns in comparison to the medium and long term ones. Many AMFs combine short term debt based instruments and stocks to lend balance to the investor portfolio. You can check out the types of mutual funds offered by OroWealth and get the best knowledge on the return of Investments.