Got some cash sitting idle for roughly 3 months before I need it. Savings account is giving 3%. Three options I have been looking at: 91-day T-bill at around 5.33%, liquid mutual fund at roughly 6.8 to 7% annualised, or a short-tenure NCD. Not sure which is the right fit for a 3-month horizon.
For exactly 3 months with a fixed end date, the 91-day T-bill is the cleanest option. You invest, it matures at face value in exactly 91 days, money is in your account. Zero credit risk, sovereign guarantee, yield locked in at the auction. The only friction is you need an RBI Retail Direct account or a broker who facilitates G-Sec purchases. If you already have that set up it takes five minutes to bid.
what about liquid funds though. they seem higher yield and you can exit any day. why not just use that?
Liquid funds are good for genuine flexibility, any day redemption. But the 6.8% yield is not locked in, it is the recent trailing return. If rates move the fund yield changes. For a T-bill the yield is fixed at the auction, you know exactly what you will get. For money with a defined end date, certainty matters more than the last 50bps of potential yield.
and the NCD option. a 3-month NCD at say 8.5% sounds better than both
The yield is better but you are taking credit risk for 3 months that you do not need to take. Short NCDs also have thin secondary markets. If something unexpected comes up and you need the money in week 6, exiting at a reasonable price is not guaranteed. For a specific 3-month need with a known end date, sovereign instruments win on certainty and flexibility. Use NCD yield for longer tenure money where the credit spread is actually compensating you for a meaningful holding period.
the ranking for short-term parking: T-bill for fixed known end dates, liquid fund for genuine flexibility, short NCD only if you are comfortable with the issuer and certain you won’t need early exit. savings account is the baseline you are trying to beat. at 3% it is easy to beat. don’t overcomplicate it.