To meet one's short term goals, one could either invest through liquid funds, ultra short term funds or accrual funds. One could also set up an SIP in these funds. Ideally, if the goal is about 6-7 months or less than a year, liquid fund are better, while for goals which are about a year from now, ultra short term funds could be preferred. And if the time left to achieve the financial goal is more than a year, say about one to two years, then one could use an SIP in an accrual fund.
In these funds one does not witness much fluctuation in the interest rate in the market, and hence the rate of return, over the short duration. Also in all these funds the chances of loss of principal amount is very less.In accrual funds the fluctuations in interest rate could be about 1-1.5% over the tenure of the investment.But it could move either ways and could even be in favour of the investor.
Investors investing in these funds, however, should keep in mind two very important things. One is the exit load. If the duration of the investment attracts exit load, that is from the time one starts the SIP to when one withdraws the corpus, then one should look for funds with no exit load for the same duration. The other thing is if there is any expected tax burden on the return that one generates during these 1-2 years of investment.
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