We always hear that "investments should be made for the long term". But what we generally miss out on are short-term investments. What happens if you really have short term needs? However good an investment may be, a short term need cannot be provided by a long-term investment. If there is a short-term need, principally you don't invest in an equity asset class or any asset class where there is a credit risk. These asset classes perform over the long term.

So then what is short term? Any need which is to be achieved and fulfilled within one year can be classified as short term. You can even, for your convenience, modify this up to, say, two years. This leads to opening of more investment avenues and will primarily depend on your investment needs. You can further classify short term needs and break them into less than three months, up to six months, less than one year and less than two years. And you can get as precise as you want to get.

What are the investment options? It is better if you first set the horizon as mentioned above as this will enable you to pick the right product. You can pick a bank fixed deposit, liquid/money market mutual funds for any investment with up to three months horizon. These funds have low credit risk and can be redeemed at a very short notice and are highly liquid Investments.

For three-six months, you can consider ultra short-term mutual funds along with the above investments. For a horizon of a year, bank FDs still hold good along with FMPs (fixed maturity plans) as they can be done across different maturity cycles. In the case of FMPs, they will mature after a specified maturity period and cannot be redeemed before the due date. In addition, short-term mutual funds along with dynamic debt mutual funds, having average maturity on the shorter side, can be considered.

For an investment with a one year horizon, it is recommended to be invested for more than one year, even one year one day. This helps in tax planning as the investment becomes long term and hence incurs benefits of indexation, and different (read lower) taxation rates become applicable. This is true for investments taxable under 'income from capital gains' and hence interest from bank deposits will not be clubbed under this head.

In case the investment cycle is of two years, then along with investments recommended for one year horizon, you can also consider medium-term debt funds as well as dynamic debt funds. You can also consider MIPs (monthly income plans) from mutual funds. These funds take a limited exposure in equity in the 5-30% range and, based on the equity exposure, can be classified as conservative, moderate or aggressive plans within this category.

Best Performing Mutual Funds

1. Largecap Funds Invest Online
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2. Large and Midcap Funds Invest Online

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4. Sector Funds Invest Online

1. Reliance Banking Fund
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5. Tax Saver MutualFunds Invest Online
1. ICICI Prudential Tax Plan
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3. DSP BlackRock Tax Saver Fund
4. Reliance Tax Saver (ELSS) Fund
6. Gold Mutual Funds Invest Online

1. Relaince Gold Savings Fund
2. ICICI Prudential Regular Gold Savings Fund
3. HDFC Gold Fund