Short Term Investments Options

What is Short Term Investments?

Short term investments are designed to provide considerable returns in a fairly short span of time which can be a year or even a few months. These plans are more focused to meet the expected near future expenses.

Usually, investors who are more inclined towards short-term investments option aren’t really interested in waiting for years in order to get their money multiplied many times over. Instead, they look for quick and effective results. This is where short term investment plans come to their rescue.

With short term investment plans, one can expect optimum returns to meet their financial objectives, but not massive results as in the case of long-term investment options. Owing to the lower risks associated with short term investment plans, they often rank high on the popularity charts of seasoned investors.

Best Short Term Investment Options - Highlights

• Short turnaround time

• Optimum returns for less investment

• Lesser investment amount

• High liquidity

• Low risk

Now that you know about the highlights of best short term investments option, let’s check out top ten best short-term investment plans from the virtual ocean of investments.

Best Short Term Investments Options

Let’s take a look at the Best short term investment options to invest in 2023.

• Recurring Deposits

• Money Market Account

• Debt Instrument

• Bank Fixed Deposits

• Post-office Time Deposits

• Large Cap Mutual Funds

• Corporate deposits

1. Recurring Deposits

   • Tenure- one can open an RD account for tenure as less as 6 months and in multiples of 3 months up to 10 years.

   • Liquidity- Normally, a recurring deposit scheme comes with a minimum lock-in period of one month. In case of premature closure of the account within one month, only the principal amount is paid to the depositors and no interest is paid to the depositor. 

   • Returns- As one of the best short-term investment plans the interest rate applicable on Recurring Deposit account are same and Bank FDs. Currently, for the tenure of 12 months and above, the interest rate applicable is 6.5% per annum.  The interest will be applicable as on the date of the first deposition. It is suggested to use FD calculator online tool to analyse the FD returns before making an investment decision..

   • Taxation- The interest earned on the invested amount is added to one’s income and is taxed as per one’s income slab rate. In this short-term investment plans, the TDS is deducted in case the interest earned is more than Rs.10,000.

2. Money Market Account

   Popularly known as liquid funds, money market accounts are designed to give you the security of capital, as well as worthy returns and, are considered as a great short-term investments option. With a maturity time limit of 91 days, these do not possess any lock-in period and offer high liquidity and least risk among mutual funds.

   • Tenure- one can open a money market account for a tenure of fewer than 13 months.

   • Liquidity- This short-term investment plans option provides high liquidity and can be redeemed in quick time.

   • Returns- The returns on money market fund are not guaranteed or fixed. Currently, MMF offers an interest rate of 7% per annum.  For maximum result, the investors should match their investment horizon with the maturities of the other investment securities of these funds and then invest.

   • Taxation- In this short-term investment plan, the profit earned on the invested amount is added to the income of the individual and is taxed accordingly. However, the profit earned on the investment made above 36 months is taxed at 20% post-indexation.

3. Debt Instrument

   Debt instruments are yet another brilliant short term investment plans, especially for risk-averse individuals. Securing capital and providing good results with no fear of market volatility, debt mutual funds are a good place to invest. Offering returns as high as up to 10.5%, this is a good choice for short tenure savings.

   • Tenure-  The tenure of short-term investment plan debt funds is divided into 3 categories.

   • Liquid fund- In this fund option, the investment is made into money market and debt securities with the maturity of investment securities up to 91 days.

   • Ultra-short-duration fund- Under this fund option, the money is invested in debt and money market instruments for the tenure of 3 months -6 months.

   • Low duration fund- Under this fund option, the money is invested in debt and money market instruments for the tenure of 6 months -12 months.

   • Liquidity- liquid debt funds provide high liquidity in investment. The liquid debt fund offers a maximum maturity of 91 days and provides higher returns as compared to the savings account.

   • Returns- debt fund is known as one of the best short-term investment plans as it offers low risk and regular returns to the investors. Currently, debt fund offers an interest rate of 7-9% on investment.

   • Taxation- capital gain tax is charged on debt fund. The Short-term capital gain tax (STCG) is applicable to the capital gains earned on the fund which is held for the tenure of 3 years. Long-term capital gain tax is applicable on the capital gains earned on the fund which is held for the tenure of more than 3 years.

4. Bank Fixed Deposits

   Fixed deposits are also known as short-term investments savings instrument in which the individual put a lump-sum amount in the bank for a fixed time period. The fixed deposit scheme is known as one of the safest short-term investments options which offer a fixed FD interest rate on investment and provides guaranteed returns.

   • Tenure- As one of the safest short-term investment plans the tenure of fixed deposit account ranges from 7 days, 14 days, 30 days, 45 days to up to 10 years. One can renew the deposits on maturity and can reinvest it.

   • Liquidity- The fixed deposit scheme not only offers high liquidity on investment but also manages reinvestment risk.

   • Returns- Fixed deposit account offers a fixed interest rate on investment and the returns are guaranteed at the end of the fund tenure. The current interest rates offered by fixed deposits are 8%-9% for more than 1 year of investment. The interest rate on fixed deposit schemes does not change even in case of market volatility.

   • Taxation- Depending on the head of income the individual falls under, FD attracts a high-income tax rate up to 30%. Even the tax is applied to the accrued interest. Fixed deposits do not offer any tax deduction to the investors.

5. Post-Office Time Deposits

   Post-office time deposits also known as post office fixed deposits are one of the safest and best short-term investment plans which offer assured returns to the investors. The scheme is offered by India post and is very popular in rural and remote areas of India.

   • Tenure- one can open post office time deposit scheme for a tenure of 1 year, 2 years, 3 years or 5 years.

   • Liquidity- In post office scheme, the interest applicable on the deposited amount is on a yearly basis. Before the completion of 6 months, the post office scheme does not allow any premature withdrawal.

   • Returns- Post office time deposit account offers the following post office fd return rate.

   Account Tenure	Applicable Interest Rate
   1 year account	5.5%
   2-year account	5.5%
   3 years account	5.5%
   5 years account	6.7%

   • Taxation- The interest earned on the deposited amount is added to the income of the individual and is taxed according to the income tax slab rate the individual falls under. 

6. Large Cap Mutual Funds

   Large-cap mutual funds are short-term investment plans where the investment is made selectively in the stocks of large business organizations to achieve substantial growth in a shorter period of time. These excellent small investment plans can give you quick and smart returns within 1 to 3 years of investment tenure.

   • Tenure- one can invest in the large-cap mutual fund for the tenure of 3-5 years.

   • Liquidity- The large-cap mutual fund scheme offers high liquidity to the investors along with high returns on investment.

   • Returns- As a safe short-term investment option, the risk involved in large-cap mutual fund investments are low and offers a high return of 8%-13%

   • Taxation- capital gain tax is charged on debt fund. The Short-term capital gain tax (STCG) is applicable to the capital gains earned on the fund which is held for the tenure of 3 years. Long-term capital gain tax is applicable on the capital gains earned on the fund which is held for the tenure of more than 3 years.

7. Gold or Silver

   Gold and silver are just like the ever-growing trees of investment forest, handy for both long and short-term investments. These investment plans are sure to give huge returns as the price of gold and silver keeps increasing every day. So, if you are looking for secure and risk-free short term investment plans and beyond, you’ll need to invest in gold or silver. Remember, the sheen of these metals is not going to fade away, not now or anytime sooner.

8. Treasury Securities

   Treasury securities or the treasury bills are another good short term investment plans offering high liquidity, safety, and satisfying returns. Their maturity dates vary from 91 days to 365 days.

9. Stock Market /Derivatives

   Shares, commodities, and derivatives are a favorable avenue for people possessing good market knowledge and high-risk appetite. This investment can be made for a short or long time span depending upon the financial objectives of the investor.

10. Investments in NCD's/ Corporate or Company Deposits

    Last, but certainly not the least, small investment plan on our list is NCD or a company deposit. This scheme allows you to select a secured NCD (Non-convertible debentures) for securing your capital. In addition, it offers attractive interest rates varying from 9% to 12%.

How Short Term Investments Work?

The companies which have a strong cash flow have short-term investments accounts on their balance sheet. This is because; the companies with strong cash position can afford to invest surplus cash in bonds, stocks or other investment securities like treasury bills, etc. in order to earn higher interest similarly as a savings account. The major objective of short-term investment plans for both investors and companies is to have capital protection while generating good returns on investment.

Requirements for Short Term Investments

Any investment is called a short-term investment if it fulfills the two basic requirements. Firstly, it provides liquidity. Secondly, the investment should be made for a short-term period of 12 months. A bond which matures within a specific time frame is also classified as a short-term investment plan. The marketable equity securities are considered as a short-term investment and can be easily traded as a liquid fund. Short-term investment plans have specified maturity date which is less than one year.

Related Terms to Short Term Investments Plan

1. Cash Investment

   This is a short-term bond, generally less than 90 days which offers returns in form of interest payments. As compared to the other investment option, cash investment generally offers a low return.

2. Cash Equivalents

   These are investment securities which provide high liquidity and have high credit quality. As a short-term investment option, these securities have low-risk and low-return profile.

3. Money Market

   Money market is the segment of the financial market in which financial instruments which have a short-term maturity period and high liquidity are traded. Money-market funds are considered a very safe investment option. However, the returns are comparatively low as compared to the other investment options.   

4. Financial Assets

   These are liquid assets, which derive profit from ownership claim or contractual right. Stocks, cash, bonds, mutual funds, and bank deposits are some of the examples of financial assets.

5. Short-term Investment Fund (STIF)

   This is a conservative investment fund which offers low risk and high returns. Short-term investment funds are considered a liquid investment fund and a safe investment option to achieve short-term financial objectives.

Wrapping it Up!

Now you don't need to ponder anymore on issues like where and how much to invest. If you're looking to invest your money in short-term investment plans, then above mentioned investment options could be the best destinations for you to stop-think-invest.

Short Term Investments - FAQs