Skip to main content

Planning For Short-Term Goals

It is said we don't plan to fail but fail to plan. But if the planning involves saving for specific goals, you cannot take chances.

If your goals are short-term —six months to two years away —a conservative approach is best suited. Stick to debt instruments as the duration is short, and as you cannot take a punt on equities. If the market turns volatile and you make losses, there isn't sufficient time to recoup these.

Twenty two-year-old Yash Sawant plans to buy a laptop six months hence. Sawant recently started work and has not built a corpus yet. He is advised to opt for a sweep-in deposit to plan for his goal. It will be linked to his savings account. Typically, any amount over and above the double of his minimum average quarterly balance will be 'swept into' a fixed deposit in pre-specified multiples. The interest earned will be higher than the savings' rate of 3.5 per cent. It may, however, be lower than a standalone deposit for the term.

Meanwhile, those such as research analyst, Levin D'souza, who is planning to sponsor his parents' US trip next year, can look at fixed maturity plans (FMPs). These are close-ended debt funds with a fixed tenure and an alternative to fixed deposits (FDs). These are more tax-efficient as compared to FDs, especially if you invest in plans giving double indexation benefits. It means you can claim indexation benefits for two financial years, without being invested for the entire period.

With interest rates peaking, this is a good time to lock-in funds in FMPs. According to financial advisors, indicative returns from a one year FMP are presently in the range of 9.7-9.8 per cent. Meanwhile, State Bank of India is giving returns at 8.25 per cent and HDFC Bank at eight per cent on a one year FD, according to their websites.

In a rising interest rate scenario, you can even consider floater rate funds

However, if your goal is two years away, you could look at either FMPs or FDs. And, if you are willing to take some risk, you can consider a monthly income plan. It would invest up to 85 per cent in debt and have an equity exposure of 15 per cent. Investors who are flexible, that is can withdraw funds plus/minus a few months after two years, can consider this option.

For risk-averse investors, the Public Provident Fund (PPF) will do well. But there is a catch: you can only withdraw if your account has matured and has been held for over 15 years. Funds deposited in PPF will earn you a tax-free return of eight per cent annually. But first, you must apply for an extension of five years, which is allowed twice. In case your account hasn't matured but crossed the six-year lock-in period, you can withdraw up to 50 per cent of the total funds.

Short-term goals are mostly consumption-related. Consider these only after your emergency- and risk-planning are in place. Emergency-planning means maintaining a sufficient balance in your account to meet three six months' expenses. And, risk planning means insuring family and self adequately against any untoward instances.

Even if you have the funds and want to temporarily park these, Take advantage of the stock market correction and invest the surplus in equities. You will benefit in the long-run when the market bounces back. And, for immediate goals, start putting aside a specific amount monthly. Check if the amount saved is aligned with your goal. If not, you may either have to push your goal further or dip into your savings.

Use debt instruments or fixed maturity plans. Going the equity way can be risky

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

FCCB buyback

WITH dismal share valuations causing bondholders to redeem, and not convert their foreign currency convertible bonds ( FCCBs ), which until early this year were regarded as one of the most preferred options for raising corporate debt, suddenly seem to have become millstones around the necks of issuers. It is the redemption pressure on cash-starved issuers, coupled with the need to preserve liquidity by mitigating further forex outflow, which seems to have prompted the Reserve Bank of India ( RBI ) to issue the circular permitting buyback of FCCBs. As per the circular, issuers can now buyback FCCBs under the automatic route up to any limit out of existing foreign resources or by raising fresh external commercial borrowings (ECBs,) if effected at a minimum discount of 15% on the book value. Further, FCCBs up to $50 million can be bought back with prior RBI approval out of rupee resources representing “internal accruals”, if effected at a minimum discount of 25% on the book value. I...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now