Got idle funds? Here’s where you can invest for short-term

Got idle funds? Here’s where you can invest for short-term

Finance & Accounting

Rupom Sharma

Rupom Sharma

6 Sep 2018, 09:30 — 3 min read

Summary: For entrepreneurs it is vital to effectively manage their working capital and at the same time invest idle capital in the short-term to grow their income. Rupom Sharma shares three tips to invest your idle funds.

Businesses come across situations where they have excess funds for a short period of time. As money comes and goes, one needs to get the best out of the funds one has in their current account without compromising on liquidity.

Here are three ways to earn better returns for your idle funds without incurring much risk:

Liquid Funds
These are simply debt mutual funds. The funds are invested in debt instruments like government securities, treasury bills. These are fairly safe investments and generally deliver 7 to 8 per cent returns in a year. One can withdraw amounts as per their requirements and as and when required. These can be liquidated on the same day or on the very next day. Funds invested over 3 years are taxed at 20 per cent after providing indexation benefits otherwise they are taxed at 30 per cent.  

Arbitrage Funds
These are a type of mutual funds that make profit by buying and selling securities in different stock exchanges. These funds do not carry market risks as the funds work by exploiting the price differential between the cash and future markets. These funds carry returns between 7 to 8 per cent. The gains are taxed at 15 per cent when sold within 12 months and exempted when are sold after 12 months (10 per cent if gains more than INR 100,000 per year).

Income Funds
These are a type of mutual funds that emphasize on current income either on a monthly or quarterly basis. Such funds are invested in a variety of government, municipal and corporate debt obligation, preferred stock, money market instrument and dividend paying stocks. Such funds carry returns between 8 to 9 per cent. These funds are to be chosen when you have funds idle for 8 months or more in general. However, it is to be noted that some funds carry minimum investment period like 36 months or more. These funds are taxed at 20 per cent when sold after 36 months of holding otherwise these are taxed at 30 per cent.    

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