Investors should make decisions based on their financial goals, taking into account the tax ramifications of debt and equity-oriented funds. Short-term objectives are served by low-risk mutual funds, which invest in securities such as money market securities and treasury bills to preserve capital and provide liquidity.
There are particular types of low-risk mutual funds that are intended to guarantee capital preservation and liquidity in difficult times if you have short-term financial objectives and wish to invest in one.These funds often make investments in low-risk products, such as money market securities and treasury bills, among others. As a result, they are appropriate for low-risk investors to both store new capital and save capital.
The top funds available for short-term investments are listed below:
Liquid funds: These funds are specifically debt funds. It can take up to 91 days to mature. Treasury notes and certificates of deposit (CDs). It's crucial to remember that liquid funds have minimal risks of credit and interest rate fluctuations. They also provide opportunities for speedy redemption. They are therefore perfect for investors who require security and liquidity in a matter of hours.
Ultra short duration funds: These funds invest in debt instruments and have a portfolio term of three to six months. Compared to liquid funds, they have a somewhat larger potential risk and return. This fund balances moderate risk with respectable returns, making it suitable for investors with an investment horizon of six months or more.
Corporate bond funds: Eighty percent of the assets of corporate bond funds are invested in highly rated corporate bonds. Every bond in this category is AA+ or higher. They provide consistency and are a reasonable choice for a two to three year horizon. They have a maturity of one to three years.
PSU and banking debt funds: This fund's main objective is to provide reduced credit risk. Investing in highly rated assets from reputable banks and public sector projects is the fund's primary objective. In addition, they provide attractive coupon payments and the advantages of steady returns over a period of two to five years.
Arbitrage funds: Another unusual fund that uses pricing disparities in equity markets to generate low-risk returns is an arbitrage fund. The returns provided by this fund are consistent and unaffected by changes in the market. They continue to be a special short-term investment alternative since they are classified as equity funds for taxes purposes.
Despite the fact that these funds provide a variety of risk-return profiles, investors must match their decisions with their goals. Always consider the tax ramifications because, although equity-oriented funds, such as arbitrage funds, have different tax treatment, gains from debt funds are taxed according to your income bracket.
Since gains from debt funds are taxed according to one's income bracket, it is imperative to take into account the long-term tax implications of these funds. However, equity-focused funds, such as arbitrage funds, have unique tax treatments.
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