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Short-Term Investment Options
Short-term investments are financial assets that can be easily converted to cash within a short period, ranging from a few days to 3 years. Short-term investments are highly liquid assets specifically designed to provide a safe and temporary place to invest the excess cash. Some popular short-term investments include high-yield savings accounts, money market accounts, treasury bills, and government bonds, which are quality products with highly liquid assets.
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Table of Content
What are Short-Term Investments?
Short-term investments are financial assets or instruments that are acquired with the intention of holding them for a short period, usually ranging from a few days to a few years. These investments are described by their liquidity and low risk compared to long-term investments. Examples of short-term investments include savings accounts, bank fixed deposits, recurring deposits, etc. Short-term investments are preferred by investors who seek to preserve capital or earn medium returns over a short time horizon while maintaining the flexibility to access their funds quickly.
Best Short-Term Investment Options
Here are some top short-term investment options to help clear up any confusion about where to invest your money for the short term.
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Short-Term Investment Plans for 1 Month
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Savings Accounts
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Liquid Funds
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Short-Term Investment Plans for 3 Months
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Recurring Deposit
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Bank Fixed Deposits
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Treasury Securities
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Money Market Account
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Stock Market/Derivatives
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Short-Term Investment Plans for 6 Months
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Large-Cap Mutual Funds
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Post-Office Time Deposits
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Debt Instrument
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Gold or Silver
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Investments in NCDs/ Corporate or Company Deposits
Short-Term Investment Options Average Returns (approx) Savings Account 0.25% - 3.5% Liquid Funds 4% - 6.5% Recurring Deposits 4.5% - 7.0% Bank Fixed Deposits 4.5% - 7.5% (depending on tenure) Treasury Securities 4.0% - 7.0% (depending on maturity) Money Market Account 3.5% - 5.5% Stock Market /Derivatives Highly Variable (can be negative or very high) Large Cap Mutual Funds 8% - 12% (long-term) Post-Office Time Deposits 4.0% - 6.5% Debt Instrument 5% - 8% (depending on type and credit rating) Gold or Silver Volatile Investments in NCDs/ Corporate or Company Deposits 6% - 9% (higher risk than FDs) -
Best Short-Term Investment Options for 1 Month
The best short-term investment plan for 1 month is:
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Savings Account
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Highly accessible and liquid: Easy to deposit and withdraw funds.
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Low risk of losing principal: Your money is insured up to a certain limit.
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Ideal for emergency funds or short-term goals: Easy access to funds for unexpected needs or upcoming expenses.
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Offers minimal returns compared to other options: Low-interest rates.
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Liquid Funds
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Highly Liquid: Easy to redeem your money quickly, usually within 1 business day.
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Low Risk: Invest in safe, short-term debt instruments like treasury bills.
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Beats Savings Accounts: Earn slightly higher returns compared to traditional savings accounts.
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Flexible Investment: Invest lumpsum or start a Systematic Investment Plan (SIP).
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Best Short-Term Investment Options for 3 Months
The best short-term investment plan for 3 months is:
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Recurring Deposits
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Tenure: RD accounts can be opened for as little as 6 months and in multiples of 3 months up to 10 years.
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Liquidity: RD schemes usually have a minimum lock-in period of one month. Premature closure within one-month results in only the principal repayment, with no interest.
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Returns: RD offers interest rates similar to Bank FDs. Currently, for tenures of 12 months and above, the interest rate ranges from 3.25% to 7.50% per annum, calculated from the date of the first deposit. Use an FD calculator to analyze returns.
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Taxation: Interest earned is added to one's income and taxed according to the income slab rate. TDS is deducted if the interest earned exceeds Rs. 10,000.
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Bank Fixed Deposits
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Fixed deposits (FDs) are short-term investment savings instruments.
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The lump-sum amount is deposited for a fixed period.
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Considered one of the safest short-term investment options.
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Offers fixed FD interest rates and guaranteed returns.
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Tenure ranges from 7 days to 10 years, renewable on maturity.
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Provides high liquidity and manages reinvestment risk.
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Fixed interest rates, unaffected by market volatility.
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Current interest rates typically range from 3% to 9%.
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Subject to high-income tax rates of up to 30%.
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Tax is applied to accrued interest; no tax deductions are offered.
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Treasury Securities
Treasury securities or treasury bills are another good short-term investment plan offering high liquidity, safety, and satisfying returns. Their maturity dates vary from 91 days to 365 days.
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Money Market Account
- They have a maturity limit of 91 days, no lock-in period, high liquidity, and low risk.
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Liquid funds, also known as money market accounts, offer secure capital and attractive short-term returns.
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Tenure: Less than 13 months.
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Liquidity: Provides quick redemption.
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Returns: Not guaranteed or fixed; currently offering around 3.35% per annum.
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Investors should align their investment horizon with fund maturities for optimal results.
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Taxation: Profits are added to individual income and taxed accordingly; profits on investments held over 36 months are taxed at 20% post-indexation.
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Stock Market /Derivatives
Shares, commodities, and derivatives are a favorable avenue for people possessing good market knowledge and a high-risk appetite. This investment can be made for a short or long time span, depending upon the financial objectives of the investor.
Best Short-Term Investment Options for 6 Months
The best short-term investment plan for 6 months is:
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Large-Cap Mutual Funds
Large-cap mutual funds focus on stocks of large business organizations for short-term growth.
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Investment tenure can range from 1 to 3 years.
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Tenure options from 3-5 years.
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Offers high liquidity and potential for high returns.
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Low risk associated with large-cap mutual funds.
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Returns range from 8% to 13%.
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Short-term capital gains tax (STCG) for holdings under 3 years, long-term capital gains tax for holdings over 3 years.
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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 that offer assured returns to investors. The scheme is offered by India Post and is very popular in rural and remote areas of India.
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Tenure- one can open a post office time deposit scheme for a tenure of 1 year, 2 years, 3 years or 5 years.
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Liquidity- In a 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.
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Returns- Post office time deposit account offers the following post office FD return rate.
Account Tenure Applicable Interest Rate 1-year account 6.9% 2-year account 7.0% 3 years account 7.1% 5 years account 7.5% Interest rates from 01.01.2024 to 31.03.2024
Taxation- The interest earned on the deposited amount is added to the individual's income and is taxed according to the income tax slab rate the individual falls under.
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Debt Instrument
Debt instruments are ideal short-term investments for risk-averse individuals. Debt mutual funds offer stability and good returns without market volatility.
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Returns can be as high as 10.5%.
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Tenure of debt funds:
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Liquid fund: Maturity up to 91 days.
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Ultra-short-duration fund: 3 to 6 months.
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Low duration fund: 6 to 12 months.
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Liquidity: High liquidity, maturity up to 91 days.
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Returns: Offers 7-9% interest rate.
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Taxation: Short-term capital gain tax for holdings less than 3 years, long-term capital gain tax for holdings over 3 years.
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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.
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Investments in NCDs/ Corporate or Company Deposits
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%.
What are the Features and Benefits of the Best Short-Term Investment Options?
The features and benefits of the best short-term investment plans are:
Features:
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Low risk: Prioritize capital preservation over high returns.
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Liquidity: Easy access to your money when needed.
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Flexibility: Diverse options to match your time horizon and goals.
Benefits:
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Grow savings: Earn more than a regular savings account.
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Emergency funds: Securely store cash for unexpected needs.
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Meet short-term goals: Save for vacations, down payments, etc.
Related Terms to Short-Term Investments Plan
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Cash Investment
This is a short-term bond, generally less than 90 days, offering returns in interest payments. As compared to the other investment options, cash investment generally offers a low return.
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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 profiles.
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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 compared to the other investment options.
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Financial Assets
These are liquid assets, which derive profit from ownership claims or contractual rights. Stocks, cash, bonds, mutual funds, and bank deposits are some of the examples of financial assets.
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Short-term Investment Fund
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.
How to Calculate Returns on Short-Term Investments?
Calculating returns on short-term investments can be simplified by using a SIP (Systematic Investment Plan) calculator. SIP calculator, which stands for Systematic Investment Plan calculator, is a financial tool used to estimate the potential returns on investments. It helps investors make informed decisions about their investment strategies and financial goals.
Wrapping it Up!
Now, you don't need to worry about 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.
Past 5 Year annualised returns as on 01-10-2024
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.
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