Need Investment Advice for Rs. 20 Lakhs for 5 Months?

Ans: Investing for five months requires a cautious and strategic approach. Your goal should be to prioritise safety, liquidity, and optimal returns. Below are investment strategies tailored to your needs, ensuring a 360-degree perspective.

Key Considerations for Short-Term Investments
Before we dive into suitable options, consider these factors:

Liquidity: Ensure easy access to funds after five months.
Capital Safety: Short-term investments should minimise risk to your principal.
Tax Efficiency: Assess post-tax returns under your income tax slab.
Investment Options for Your Time Horizon
1. Ultra-Short Duration Funds
These funds focus on very short-term debt instruments.
They typically mature between three to six months.
Risk is low, making them ideal for short-term needs.
Returns are better than savings accounts or fixed deposits.
Tax efficiency is better if held beyond three months.
2. Arbitrage Funds
These funds capitalise on price differences in equity and derivatives.
They offer returns comparable to liquid funds but are taxed like equity.
Short-term gains are taxed at 20% for your five-month tenure.
Ideal for slightly higher-risk takers seeking tax efficiency.
3. Liquid Funds
Liquid funds invest in securities with a maturity of up to 91 days.
They provide stable returns and high liquidity.
Ideal for parking funds for three to six months.
Suitable for risk-averse investors with short time horizons.
4. Bank Fixed Deposits (Short-Term)
Consider FDs with a maturity of six months or less.
They offer assured returns, albeit lower than market-linked funds.
Taxation depends on your income tax slab.
Use this if you prioritise safety over returns.

Evaluating Key Points in Your Investment Journey
Liquidity Is Essential
Liquidity ensures your funds are accessible when required.
Avoid options with lock-in periods or exit loads.
Consider Risk Tolerance
Stay conservative, as your tenure is short.
Avoid high-risk instruments like equity mutual funds.
Focus on Post-Tax Returns
Understand the tax implications on interest or capital gains.
Equity fund short-term gains are taxed at 20%.
Debt fund gains are taxed as per your income slab.
Avoid Index Funds for This Tenure
Index funds track the broader market, which is volatile in the short term.
They don't provide capital safety over five months.
Actively managed funds offer more stability for short durations.
Additional Insights
Regular vs Direct Plans in Mutual Funds
Direct plans lack professional guidance, which may affect investment decisions.
Investing through a certified mutual fund distributor ensures tailored advice.
Regular plans offer value through personalised strategies and market insights.
Taxation Awareness
Use the updated mutual fund tax rules for calculating gains.
Ensure short-term gains are aligned with your tax-saving strategy.
Suggested Investment Allocation
Low-Risk Strategy
60% in liquid funds for safety.
30% in ultra-short duration funds for moderate returns.
10% in arbitrage funds for tax-efficient gains.
Moderate-Risk Strategy
50% in ultra-short duration funds for slightly higher returns.
30% in arbitrage funds for equity-like taxation.
20% in liquid funds for instant access to funds.
Final Insights
Short-term investments should prioritise stability and liquidity over high returns. Diversify across instruments to balance risk and return. Review tax efficiency to maximise post-tax benefits.

Evaluate progress in three months and adjust based on market conditions. A structured approach ensures your capital is safe while earning optimal returns.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment