Investing Strategy: Want To Invest Rs 5 Lakh For The Short Term? Here Are Your Options

When planning to invest Rs 5 lakh for the short term — anything between a few days to a couple of years — your focus should be on safety, liquidity and reasonable returns. High-risk investment avenues like equity instruments may seem tempting for quick gains, but they are prone to market volatility, which may lead to capital erosion, especially over shorter timeframes.

Here are some low- to moderate-risk investment options to consider if you're looking to park your funds for a short duration:

Bank FDs remain a go-to option for short-term investors. Most banks offer tenures as short as seven days to as long as 10 years, but a one- to three-year deposit can fetch you interest in the range of 6.5% to 7.5% per annum, depending on the bank. They’re low-risk and come with capital protection.

If you don’t want to invest a lump sum amount, RDs allow you to invest systematically every month for a fixed tenure. They’re ideal if you wish to spread your Rs 5 lakh over time instead of a lump sum deposit.

Liquid Funds, also known as Liquid Mutual Funds, are a type of Debt Fund that invests mainly in short-term debt instruments with maturities typically less than 91 days. These instruments may include treasury bills, commercial paper, certificates of deposit, and government securities. Most liquid funds allow withdrawal within 24 hours, making them highly liquid.

If you are okay with slightly more risk than liquid funds, ultra-short-term funds may offer slightly better returns. They invest in debt and money market instruments with maturities of three to six months and are suitable for an investment horizon of six to 12 months.

Arbitrage Funds are hybrid mutual funds that seek to earn returns by taking advantage of price differences of the same security across different markets or segments. Fund managers buy and sell the same asset simultaneously in different markets to capture these short-term pricing inefficiencies. Since both the buying and selling prices are predetermined, these funds carry minimal stock market risk. They are best suited for investors with an investment horizon of one to three years.

Short-term funds are debt mutual funds that lend to companies for a period of one to three years. They usually invest in high-quality companies with a strong track record of timely loan repayments and stable cash flows to support their borrowings. These funds are ideal for money that you won’t need for at least 12 to 18 months. They often offer better returns than traditional bank fixed deposits.

Post Office Time Deposits (similar to bank FDs) offer assured returns with sovereign backing. It comes with tenures of one, two, three, or five years. The one-year and two-year schemes are ideal for short-term investors.

Overall, when investing Rs 5 lakh for the short term, the key is to align your investment with your risk tolerance and liquidity needs. Spread your funds across a mix of fixed income and low-risk mutual fund products to balance returns and safety.