Want to invest for short term? These tips will help you

short term investment, lumpsum amount, systematic investment plan, SIP, short-duration funds

FMPs are closed-ended products which can only be redeemed on maturity. (Reuters)

Dhaval Kapadia

  • Given the current volatility, should I invest a lumpsum amount or go for systematic investment plan (SIP) for one year? – Ankur Gupta

For a short investment horizon of one year, it is advisable to invest in short-duration funds wherein the risk of capital loss is minimal. Typically, fixed income funds are not as volatile as equity funds, and the NAVs of such fixed-income funds (short duration funds) tend to move upwards steadily (except for longer duration funds which are relatively more volatile). Hence, a lumpsum investment would make more sense than investing the same corpus in a staggered manner through an SIP. In case of investment in equity mutual funds which are relatively more volatile, SIP may benefit the investor in averaging his purchase cost, enabling him to buy more units when markets are down.

  • I may lose money in fixed maturity plan (FMP) as I have got only part payment. In future, should I invest in new FMPs? —Neeraj Kumar

FMPs are closed-ended products which can only be redeemed on maturity. Look at the scheme’s offer document to check the portfolio rating allocation that the scheme is targeting. One can mitigate losses due to default, by investing in high credit quality diversified portfolios, as they have a lower probability of security default. Investors cannot exit an FMP prior to the maturity date of the scheme, except for trading amongst unitholders on an exchange wherein the liquidity on offer may be limited.

  • If I select a fund myself and fill the form and give it to a bank along with a cheque, will it be a direct plan? —B K Pradhan

When you submit the application at the bank, the bank would mention its ARN code (a distributor code) on the form before submitting it to an acceptance centre, implying it is the distributor for the investment concerned. The investment would be treated as being under a regular plan, which would have a higher expense ratio compared to a direct plan to account for the commission paid to distributors. To invest in lower cost direct plan, submit the application at the investor service centre of the asset management company or at Karvy/CAMs acceptance centres.