Which are the best investment options for recurring financial goals like yearly kids’ school fees, insurance premiums, or yearly travel kind of goals?
All of us have certain recurring financial goals. As I mentioned above, these may include our kids’ school fees, insurance premiums, travel expenses, or house maintenance. In such situations, what is the best product to invest in, and how can these goals be managed?
Best Investment Options For Recurring Financial Goals
When I am pointing to recurring financial goals, I mean to assume that they are all in short-term nature like within 1 year or 2 years.
As the goals are short-term in nature, you obviously have to remove the equity component when investing to achieve such goals. The only option is to explore debt instruments. Also, please note that for such short-term goals, chasing returns must not be your investment strategy. Instead, focus on safety and funding your goals at the right time with the right amount. Therefore, don’t chase returns from debt products either. Instead, they should be as safe as possible while providing decent returns around the current inflation rate.
# Bank FDs or RDs
Use bank FDs if you have a lump sum amount available to fund such recurring goals. However, if that is not the case, then simply use bank RDs. As mentioned above, don’t look for banks, NBFCs, or small finance banks that offer higher rates of around 0.5% to 2%. It hardly matters for such a short period. Hence, stick to PSU or well-established private sector banks where you can invest.
The only issue with bank FDs or RDs is that you must be sure of when your goal is due. Otherwise, if you need the money before maturity, you will end up paying a premature withdrawal penalty. If the funding for your goal comes after maturity, then you will have to reinvest again.
If your bank offers Sweep-In FD, then simply use this option.
# Liquid Funds
As I mentioned in my last blog post “Short-Term Investment Options in India 2025“, use Liquid Funds for your requirements within 1 year (few months) or so goals easily. The only advantage of Liquid Funds over Bank FDs or RDs is that you do not need to specify the maturity. Hence, for goals that are short-term in nature but unsure of when it will happen, then use Liquid Funds. As you are aware, the taxation of Liquid Funds is the same as Bank FDs and RDs.
Do note that liquid funds do not necessarily mean safe investments. There have been certain past instances where returns took a significant hit due to fund managers’ decisions to invest in low-rated bonds. Hence, be cautious when choosing liquid funds (Refer to my earlier post “Is Liquid Fund Safe and alternative to Savings Account?“.
# Arbitrage Funds
If your goal is more than a year, then you can consider Arbitrage Funds also as they offer tax advantage over Bank FDs, RDs, and Liquid Funds. However, be sure that for few months these arbitrage funds may generate negative returns (refer to my earlier post “Can Arbitrage Funds give negative returns?“.
Conclusion – Exploring beyond these above-recommended categories may not be suitable for funding your recurring financial goals. As I mentioned above, the primary focus should be the protection of the principal and the ability to fund the goals properly rather than chasing the returns. Don’t try to beat the inflation for such goals by exploring other alternatives. Instead, the best way to beat inflation is by choosing safety instruments and investing more to achieve financial goals.
