How should I invest for short-term goals?

I have some short-term goals that are due in three years. What are the low-risk investment options that can protect my capital and also get me better post-tax returns?

—Name withheld on request

For your short-term goals, it is prudent to consider investments in debt instruments exclusively. Here, we will list a few options other than bank fixed deposits (FDs ) where you can invest and potentially earn slightly higher post-tax returns.

Debt mutual funds: You can invest in funds within categories such as corporate bond funds, banking and PSU funds, and short-term funds. These funds generally offer a better return profile compared to fixed deposits, and their post-tax returns are often more favourable since tax incidence occurs only upon redemption.

Corporate FDs: Another option is to invest in corporate FDs offered by deposit-taking non-bank financial companies (NBFCs) like Bajaj Finance and Shriram Transport. These investments can potentially provide higher returns than traditional bank FDs.

Corporate bonds: These come with varying levels of risk and returns. High-quality corporate bonds with minimal risk can yield returns in the range of 7-8.5%. If you are open to assuming slightly higher risk, you can consider secured bonds, which may offer returns in the range of 9-12%.

These options provide alternatives to bank FDs that may offer better returns while still maintaining a focus on safety and liquidity. It’s important to carefully assess your risk tolerance and investment horizon before making any decisions. Additionally, consider consulting a financial advisor for personalized guidance.

Vijay Kuppa is chief executive officer of InCred Money (formerly Orowealth)