Options for short term investors

It is never an easy task to plan your money when you have less time on hand. However, often, one ends up thinking short-term with his money even when he has decades at his disposal .

For instance, you want the stock you pick to go up the next day and will end up feeling miserable if it sheds five percent though your broker might have warned you that it is a long-term buy. At the same time, you would be tempted to exit a stock the moment it gives you 10 percent returns though you bought it for a long-term portfolio in the first instance.

There is surely something about shortterm gains and profits. It makes one feel good, gives a sense of comfort as you can see the gains for real.

Unfortunately, if you are building a portfolio for the short-term , you may not have the luxury of a number of products simply because they can be comforting only in the long term.

For instance, a property you buy can never be for a short term, and more so in the current environment.

Similarly, if you are dabbling in equity for shortterm gains, think again.

Even the government doesn't like your short-term approach and hence has decided to tax your gains on short-term investments, while long-term gains are absolutely tax-free .

So, what are the options for short-term investments?

Equity can be an option provided you have a back-up of funds for an emergency. For instance, when the markets are in a cyclical uptrend, the chances are that you end up making some quick money in the short term.

However, such a strategy requires perfect timing and good selection of stocks which may not be everyone's cup of tea.

Even those who dare to bet on equity with a horizon of less than six months or one year, should have another plan for their funds, as equity as an option is risky at all times and more so in the short term.

While 'short term' is a debatable term in the equity markets, it entirely depends on the economic environment . For instance, those who invested in January 2007 have had to wait for more than two years to see positive returns while those who invested in March 2009 needed a month to see a profit of over 10 percent.

Considering the uncertainty attached to equity, debt is a better bet for short term investors as it is free of capital erosion.

For those dependent on the corpus, the options are limited and hence debt is the only choice. Within the debt category , there are a larger number of options in recent times with mutual funds too offering a wide range of products.

For a short term, some of the debt options like treasury plans and gilt funds (at least for six months) continue to be good options though volatility has increased in this product and returns have come down drastically. If an investor has a horizon of less than one year, this can still be an option as interest rates are expected to come down.

Short-term plans are replacing liquid plans as an option in the last few months because of their better performance. These could be ideal for investors who are looking at products with tenure of 3-6 months. The yield ranges from 6-7 percent.

For very short-term needs, a liquid plan is an ideal product as it does not carry any risk and offers better returns than savings bank. A dividend plan can also take care of the tax angle as it is tax-free .