What Are Short Term Investment Plans?

Savings Account

This is one of the most common short term investment plans available to investors in India. The high liquidity option allows you to withdraw funds from your account when required. Such short-term investment plans are risk free offering both safety of capital and interest payouts.

However, the only drawback of parking your funds in a savings account is that you earn only low profits. This is so because interest rates of a savings account may be as low as 2%, which makes it quite unattractive to investors looking to grow their money.

Debt Instruments

Debt instruments are one of the best short term investment plans as they are both liquid and offer handsome returns. You can choose between government bonds, corporate bonds, debt and money market instruments.

Since these instruments are debt oriented, they are not completely dependent on market conditions and are suitable for investors looking for predictable returns.

National Saving Certificate (NSC)

The National Saving Certificate is a smart short term investment as it is extremely safe, offers guaranteed returns and is backed by the Government of India.

However, the National Saving Certificate is not ideal if you are looking for highly liquid short term investment plans. This is so because you may not be able to withdraw funds when required as it has a tenor of 5 years.

Recurring Deposits (RD)

Depending on your banking provider, interest rates on your recurring deposit can range anywhere between 6-7%. It is entirely risk free and preferred by conservative investors, who are looking to park their savings safely in exchange for decent returns.

While the RD tenor varies between 6 months and 10 years, there is a lock-in duration of 1 month during the premature closure of the account. As recurring deposits are amongst the best short-term investment plans, bank FDs and RDs have similar interest rates for the same tenor.

Fixed Deposits (FD)

One of the most popular short term investment options, fixed deposits offer secure returns. Here, you need to invest a specific amount for a chosen tenor at a fixed interest rate. The FD maturity calculator is a tool that is useful when it comes to calculating the returns you will receive at maturity on your investment. All you have to do is enter the deposit amount, expected rate of interest and tenor. You can opt for regular interest payouts or choose the payout at maturity option.

Like RDs, even FDs can be withdrawn only after the stipulated time period. However, you can withdraw before the maturity date by paying a negligible penalty to the bank. You can check some of the top FD issuers in the market by accessing the Bajaj Markets website.

Large Cap Mutual Funds

Large cap mutual funds refer to investment plans consisting of shares or a portion of shares from large and well-performing companies. As these funds offer lesser volatility when compared to other kinds of mutual funds, these are one of the most attractive short term investment plans with high returns.

With these short-term investment plans, you can enjoy high liquidity along with better returns ranging from 8-13%.

Post-Office Time Deposits

Investing in these short term plans is one of the most reliable options offering you guaranteed returns. You can choose a tenor of 1, 2, 3 or 5 years with varying interest rates up to 6.7% p.a.

However, you may not be able to withdraw funds before completing 6 months from the date of application.

Gold or Silver

These investment options have higher flexibility as they can be used for long- and short-term purposes. Investing in such assets can fetch you high returns as the cost price of silver and gold increases considerably over a period of time.

Treasury Securities

These are also called treasury bills and are ideal investment options that can provide high returns. While safety is one of the most vital advantages, these bills also offer high liquidity making it another popular short term investment plan. The tenor of these securities varies from 91 days to 365 days.

Stock Market /Derivatives

Investing in shares, derivatives and commodities is an ideal option for those with sound knowledge of the market. For those willing to take slightly high risks for generating maximum profits, investing in stock market is the best alternative.

Ideally, you may opt for a short term or a long-term plan based on your financial requirements.

Corporate or Company Deposits

A company deposit can fetch high returns while providing capital protection. With attractive interest rates ranging from 9-12%, investing in a corporate deposit is one of the best short term investment plans.

Liquid Funds

Similar to mutual funds, you invest your corpus in government securities of a shorter duration. Whether you consider short term investment plans for 1 month or short term investment plans for 6 months, you have high liquidity options.

While this investment can fetch you high returns of up to 7%, understand that it can take approximately 2-3 days to get your funds.

Arbitrage funds

These are also known as equity mutual funds and ideal if you invest in them for at least one year. After a year, you can even earn up to 8% as they are more tax efficient for a longer duration.

Money Market Investment Trusts

These are debt funds and ideal short term investment plans as they offer good returns with a short duration of up to 1 year. Investing in such short term investment plans for 3 months can also fetch higher returns while maintaining high liquidity levels.

The first and foremost objective here is to protect your capital. There are a number of factors to consider before making any short term investment plans.

1. Safety of Capital

The amount of risk you are willing to take with your investment is dependent on your financial goals and circumstances. However, if you are making short term investments, it’s advisable to invest in trustworthy financial institutions and instruments.

This ensures that your capital is safe while offering decent returns. If you’re looking for absolute safety of capital and returns, the best short term investment plan is bank and NBFC FDs and RDs, T-bills and National Saving Certificate.

2. Liquidity

The primary goal of a short term investment plan is liquidity. Hence, it’s important to choose the best short term investment plan for your liquidity goals.

The short term investment with high returns that can easily be liquidated within a stipulated time include the following:

• Bank and NBFC FDs and RDs

• Treasury bills

• Low-risk mutual funds

• National Saving Certificate.

3. Tax Benefits

Investing in smart tax-saving financial instruments can help you save a lot of money. This is why it’s important to understand the tax benefits of different short term investment options.

There are two types of tax benefits you can enjoy when you invest in short term investment options:

Tax Benefits on Interest-paying Investments

When you invest in short term options offering returns in the form of interest, the interest will be taxable. However, you may claim a tax rebate of up to ₹10,000 under section 80TTA.

Tax Benefits on Capital Gains

When you withdraw or redeem your debt instruments, the profit you make is called a capital gain. This capital gain is taxable if it’s redeemed within 36 months of holding.

However, if you redeem it after a period of 36 months, your capital gains are considered as LTCG or long-term capital gains. Thus, they can be indexed before taxation giving you tax benefits.

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