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Short-term Investing

Dhirendra Kumar

You've mastered the art of investing for your retirement and for your child's education. But you're less clear about how to invest the money for that bigger house you'll need before long. Or for establishing the badly needed cash cushion you might need anytime.

Most people park money they'll need soon in a bank account, but they could do better by taking a bit more risk. For the past three months ending November 30, 1999, the average intermediate-term bond fund gave 12.88% annualised return, the average short-term bond fund gave an annualised return of 9.64%, and the average gilt fund gave an annualised 9.8%, versus 5.5% for a three-month deposit with State Bank of India. That may not seem like a lot, but compounded over time it could mean the difference between flying to your holiday destination and a long rail journey. Consider these places to stash your cash.

Intermediate Term Bond Funds

These funds mainly invest in corporate and sovereign debt with maturity ranging from one to five years. These funds give steady returns but can be volatile with changing interest rates. You can also lose some capital in these funds, if interest rates rise. Most of these funds charge a redemption fee ranging from 0.5 to 1 per cent, for redemption within six months. If your financial need is at least six months away then these funds are ideally suited for you. Besides, these funds are very effective short-term parking for building an equity position in a fund.

For instance, if you get a windfall of Rs 100,000 as arrears of pay revision which you want to stash as a long-term saving in an equity fund. But investing a lakh at one go in an equity fund can give you some depressing and nasty surprises. Here, an intermediate-term bond fund can make your life easier. After choosing the equity fund you want to invest in, invest in the bond fund of the same fund family with an instruction to redeem a specific amount worth of units every month for investment in the equity fund. By choosing this you insulate yourself from the possibility of getting bruised by entering the fund in an overheated market. This also enables you to make the law of averages work in your favour, while all your money is working for you all the time. A medium-term debt fund could be a very effective medium to systematically channelise your windfall into equities.

Short-term Bond Funds

These funds invest mainly in treasuries and corporate bonds. They limit risk by hewing to the short-end of the yield curve. With an average duration of just six months, they are badly hurt when interest rates rise. If you don't want to put your principal at risk, but would like to get a little more return, short-term bond funds are a good first step away from bank deposits. But be wary of some funds, which will dip into lower-quality bonds for their higher yields. Such funds look safer than they are, because bond defaults have been few and far between in recent years.

Gilt Funds

A new class of debt funds has emerged over the past one year, which invest only in government securities. These funds invest in wide-ranging government debt of varying maturity. These funds are almost fully insulated from credit risk, but based on the maturity profile can also be volatile because of changing interest rates. Be wary of gilt funds with long maturity as they will be more sensitive to interest-rate shifts than short-term debt funds. And don't assume that these are risk-free funds. These funds are only protected from defaults, but can be vulnerable to rate changes.

Liquid Fixed Income Alternatives
Fund	Ret-3 Mth	Ret-1 Yr	Launch	Size	NAV	Price_Entry	Price_Exit
Medium Term Debt Funds
Alliance Liquid Income	2.82	12.42	03-1997	569.00	13.91	13.91	13.91
Alliance MIP	6.95	-	07-1999	129.00	11.45	11.45	11.45
Birla Income Plus	2.87	12.80	10-1995	1663.63	16.91	16.91	16.91
Chola Freedom Income	3.22	12.17	10-1997	2.17	12.20	12.20	12.20
Chola Triple Ace	2.87	11.93	03-1997	14.98	14.02	14.02	14.02
DSPML Bond Fund	2.71	12.64	04-1997	772.18	13.67	13.67	13.67
Escorts Income Plan	3.04	14.21	05-1998	6.82	16.33	16.33	16.33
IL&FS Bond Fund	2.61	-	07-1999	60.06	105.34	105.34	105.34
ING Income Portfolio	2.68	-	04-1999	66.29	10.79	10.79	10.79
ITC High Interest Fund	2.84	12.24	04-1997	240.21	13.81	13.81	13.81
JF India Bond Fund	2.96	13.68	11-1997	13.93	12.93	13.06	12.93
JM Liquid D	2.27	10.69	12-1994	89.24	10.36	10.36	10.36
JM Liquid G	3.00	13.85	12-1994	89.24	15.54	15.54	15.54
KP Income Builder	3.30	12.68	06-1997	126.59	13.80	13.80	13.80
LIC Bond Fund	2.88	-	05-1999	56.00	10.74	10.74	10.74
Magnum LIF - Growth	2.53	-	11-1998	342.53	11.42	11.42	11.42
Magnum LIF- Dividend	1.96	-	11-1998	342.53	10.25	10.25	10.25
PNB Debt Fund	3.03	-	06-1999	35.00	10.59	10.59	10.59
Pru ICICI Income Plan	2.86	13.48	06-1998	1338.16	11.93	11.93	11.93
Reliance Income Fund	2.78	12.75	12-1997	16.78	12.62	12.62	12.62
Sun F&C Money Value Bond	2.73	12.44	11-1998	88.68	11.34	11.34	11.34
Sundaram Bond Saver	2.97	14.57	11-1997	138.29	12.88	12.88	12.88
Tata Income Fund	4.71	15.80	05-1997	145.56	14.49	14.49	14.49
Templeton India Income	2.88	13.69	03-1997	478.67	14.33	14.33	14.33
UTI Bond Fund	2.74	12.68	06-1998	709.00	12.04	12.04	12.04
Short-term Debt Funds
Alliance Cash Manager	2.41	9.24	05-1998	39.00	1144.07	1144.07	1144.07
Birla Cash Plus	2.37	9.99	06-1997	105.72	12.58	12.58	12.58
DSPML Liquidity Fund	2.31	9.20	03-1998	22.10	11.55	11.55	11.55
Dundee Liquidity Fund	2.92	-	02-1999	6.42	10.94	10.94	10.94
JM High Liq. Fund (G)	2.68	12.07	12-1997	28.14	12.68	12.87	12.68
JM High Liq. Fund (I)	1.89	8.79	12-1997	28.14	11.56	11.73	11.56
KP TMA	2.60	8.89	04-1998	1.90	1146.40	1146.40	1146.40
Magnum InstaCash (Cash)	2.23	-	05-1999	56.00	10.55	10.55	10.55
Magnum InstaCash (Growth)	1.70	-	05-1999	56.00	11.35	11.35	11.35
Pru ICICI Liquid Plan	2.42	9.70	06-1998	142.75	11.45	11.45	11.45
Reliance Liquid Fund	1.97	7.98	03-1998	20.40	11.39	11.39	11.39
Sun F&C Money Value Liquid	2.33	9.25	11-1998	3.53	11.00	11.00	11.00
Tata Liquid Fund (A)	2.54	10.36	08-1998	0.38	11.30	11.30	11.30
Templeton India Liquid Fund	2.50	10.06	06-1998	18.38	11.51	11.51	11.51
Gilt Funds
Alliance GSF (LT G)	-	-	10-1999	1.00	1013.11	1013.11	1013.11
Alliance GSF (ST G)	-	-	10-1999	1.00	1017.60	1017.60	1017.60
Birla Gilt Plus ( Inv.)	-	-	10-1999	20.00	10.20	10.20	10.20
Birla Gilt Plus ( Liquid )	-	-	10-1999	20.00	10.30	10.30	10.30
Birla Gilt Plus (Long Term)	-	-	10-1999	20.00	10.26	10.26	10.26
DSPML GSF	-	-	09-1999	69.00	10.29	10.29	10.29
Dundee Sovereign Trust(G)	3.41	-	07-1999	7.48	10.69	10.69	10.69
JM G-Sec PF	-	-	09-1999	36.00	10.33	10.33	10.33
JM G-Sec Regular	-	-	09-1999	36.00	10.30	10.30	10.30
JM G-Sec Short Term	-	-	09-1999	36.00	10.23	10.23	10.23
K Gilt '98 - Inv Plan	2.76	-	12-1998	365.00	11.22	11.22	11.22
K Gilt '98 - Saving Plan	2.42	-	12-1998	365.00	11.02	11.02	11.02
Pru ICICI Gilt - Inv Plan(G)	3.39	-	08-1999	183.47	10.42	10.42	10.42
Pru ICICI Gilt - Tre Plan	2.89	-	08-1999	183.47	10.38	10.38	10.38
Tata GSF (A)	-	-	08-1999	55.80	10.44	10.44	10.44
Tata GSF (R)	-	-	08-1999	55.80	10.44	10.44	10.44
Templeton IGSF	2.50	-	06-1999	108.44	10.69	10.69	10.69
UTI G-Sec Fund	-	-	09-1999	274.00	103.87	103.87	103.87

Mutual Funds

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