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Short Term Investment Plans

What are Short-Term Investments?

Short-term investment plans are those that can be easily liquidated, meaning they can easily be converted into cash. The time period for a short-term investment plan generally ranges from one day to up to five years.

 

Simply put, short-term investment plans are low-risk ones and involve trustworthy financial institutions and instruments such as fixed deposits, national saving certificates and large-cap mutual funds. When you are not interested in a lengthy investment horizon, a short-term plan is your best bet, as it can fetch optimum returns.

How Short Term Investment Plans Work?

Short-term investment plans are plans that are invested only for a short period of time, typically between one day to five years. Given the brief investment time horizon of small term investment plans, it is crucial to invest with trustworthy and reliable financial institutions.

 

These investment options for short term are ideal for those looking to utilise funds immediately. Despite the need to use funds in the immediate future, you may still want to generate handsome returns.

 

So, rather than keeping funds idle, you can look out for short term investment plans to maximise your earnings.

List of Investment options for Short Term in India

There are a number of short term investment plans available in India. Here’s a list of some popular small term investment plans to help you choose the best scheme that best suits your financial goals.

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. 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.

Why Choose Short-term Investment Plans?

Short term investments are invested in relatively safe financial securities that guarantee safety of capital while generating assured returns. Investors choose short term investment plans when they have fund requirements in the immediate future and also want to generate handsome returns.

 

You can also use short term investment plans to plan out your short term financial goals such as buying a new phone, planning vacations, arranging weddings, etc. A short term investment plan is highly preferred by investors looking to park their funds in risk free, securitised investment options that generate assured returns.

 

This becomes especially important during such times when inflation is rising rapidly while the bank’s savings rate hovers around the 2-3% mark. A short term investment plan is a lifesaver when you can’t let inflation affect your money but cannot take risks with your capital as well.

 

These types of investments are often held with the government or with highly trustworthy and reliable corporations. Some of the best short term investment options include FDs, RDs, Treasury Bills, government or corporate bonds and National Saving Certificate.

Things to Consider Before Investing in a Short Term Investment Plan

With short term investment plans, there is no time left to help you combat the volatility that comes with investing in riskier long term securities. Hence, it’s imperative that you exercise due diligence while making any kind of investment, especially with short term investment plans.

 

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.

Conclusion

Given the number of short term investment options available in the market, here’s a quick glimpse of some of the best plans to help you make the right investment.

Short Term Investment Options

Tenor

Rate of Return (p.a.)

Ideal for

Savings Account

N/A

2.7-6%

High liquidity levels

Bank and NBFC Fixed Deposits

7 days to 10 years

3-8%

Conservative investors

Treasury Securities

91 days to 365 days

The difference between the issue price and face value

Conservative investors

National Saving Certificate

5 years

7%

Conservative investors

Corporate Deposits

6 months to 5 years

6.25% to 8.13%

Risk-averse investors seeking assured and decent return

Recurring Deposits

3 months to 10 years

5.35-7.25%

Conservative investors

Post Office Time Deposits

5 years

7%

Conservative investors

Large-cap Mutual Funds

3 to 5 years

Historically 10% to 12%, market-linked

Investors seeking higher rates of returns

Debt Instruments

3 to 12 months

7% to 8%

Conservative investors

Disclaimer: These interest rates have been updates as of January 2023 and are subject to change.

 

Understand that investments are heavily dependent on your personal circumstances and financial goals. However, consider factors such as safety of funds, liquidity and tax benefits before making any investment decisions.

 

Now that you have explored some of the most popular short term investment plans and their key benefits, choose those schemes that align with your goals.

FAQs on Short Term Investment Plans

  • ✔️What are the top short term options to invest in 2023?

    You may invest in any of the following plans:

    • Liquid funds

    • Short-term corporate bonds

    • Government bonds

    • Certificates of Deposit

    • Money market accounts

  • ✔️Can short term investments be considered assets?

    Yes, whether you invest for a month or a year, short term plans are assets.

  • ✔️What are the pros of investing in short term plans?

    • Minimal duration

    • Easy liquidity

    • Better transparency

    • High flexibility

  • ✔️What is the purpose of a short-term investment?

    When you are looking to utilise funds immediately but also want to generate profits rather than parking them as idle cash, such short-term plans are ideal.