The act of investing comes with different factors such as different modes of investment and investment. An investment horizon can be defined as tenure for which you can keep investing. Investment horizons can be classified into long-term and short-term. Long-term investments are carried out for purposes such as purchasing a house or saving for retirement. Generally, long-term investments are investments that are carried out for more than a decade. Short-term investments, on the other hand, are investments in mutual funds or any other investment schemes for two or three years.
Now that you know what investment horizons are, let’s look at the two investment modes, shall we? In case you are thinking of opting for mutual funds, you will need to choose one of the two investment moods. Those two modes are systematic investment plans or SIPs and lump-sum investments. Under SIPs, you can pay for your mutual fund’s investment in instalments. Lump-sum investment on the other hand function differently.
What are lump-sum investments?
As stated earlier, lump-sum investments are known for functioning differently than SIPs. Under this investment mode, you are required to pay for the mutual fund investment in one go instead. This is very different from SIP as under that mode, you can pay in regular instalments. Irrespective of the cost that’s required for investment, you are required to pay all of it at once. Hence, it is important that before opting for this mode of investment, you should make sure that you can access the required investment amount easily. In case you can’t access it, you need to hassle to make arrangements for the payment.
Are there any features associated with lump-sum investments?
- In place of paying in regular instalments, a lumpsum can be defined as an amount of money that’s paid all at once.
- To complete a lump-sum investment, all that’s required of you is to check that you have the entire money at your disposal.
- Other than access to the required amount of investment, it is also recommended that you should have higher risk tolerance.
What are the best short-term investment options for lump-sum investment?
Listed below are the ideal short-term investment options if you have chosen the lump-sum investment mode:
- Recurring deposits:
A Recurring Deposit also referred to as RD, can be defined as a unique term deposit account that’s offered by Indian Banks. RD is known for being an investment tool that allows account holders to make regular deposits and then earn decent returns on the investment. Because of the regular deposit factor and an interest component, RDs are often known for providing flexibility and ease of investment to the account holders.
- Savings account:
Another place you can park a windfall lump-sum amount is your savings account, where your salary is credited every month. Saving accounts are known for being liquid, as you can access these funds at very short notice. However, it is also important to note that the rate of interest earned on these funds is not that high. Savings accounts are a great investment avenue if you are concerned about factors such as liquidity and safety.
- Short-term debt funds:
These are the types of debt funds that are known for investing in debt instruments that have a residual maturity ranging from 6 months to 1 year. By the name, they intended for very short-term debt investors. A reason to consider them is that the returns on a debt fund will be higher in comparison to FDs.
- Money market funds:
Money market funds are known for typically investing in short-term government instruments such as call money market, treasury bills, commercial paper, bank CDs and many more, that come with a maturity of 3 months to 1 year. These funds are also known for being free of default risks. Also, the interest rate risks are known for being minimal.
Based on the information above, you don’t need to worry about issues like where and how much to invest. Also, in case you don’t have access to funds, you can opt for the other investment mode which is SIP