8 best short-term investment options in India
If you’re looking for secure ways to invest your money for steady, risk-free growth, the following options are ideal for you.
The best short-term investment options available in India are the following
- Savings account
- Fixed deposits
- Recurring deposits
- National Savings Certificate
- Liquid Funds
- Investments in NCD's/ Corporate or Company Deposits
- Treasury Securities
- Post-Office Time Deposits
Read along to know more about these savings schemes and find out which is the best option to grow your savings.
1. Savings account
As one of the preferred choices of most people, savings accounts offer maximum liquidity. This helps you withdraw funds anytime and anywhere without any hassles. However, with an interest rate hovering around 4%, a savings account is not the bestinvestmentvehicle unless you constantly need access to all your funds.
2. Fixed deposits
Fixed deposits are easily among the best options for short-term investments. They offer a high rate of return, independence from market fluctuations and interest rate volatility, and high flexibility in terms of tenor period. You can also withdraw your deposit during times of emergency by paying a penalty. Theinterest on FD is taxableafter your earnings cross Rs. 10,000.
The safety of capital and surety of returns has increased the popularity of fixed deposits as investments. Enjoy additional features likefixed deposit calculatorthat help you calculate returns and plan your investments accordingly. You can opt for a hassle-free online fixed deposit application with some of the leading financiers. You can checkfixed deposit rates in Indiafirst before making a decision.
3. Recurring deposits
These deposits can be opted for if you do not want to invest a lump sum amount in one go. Recurring deposits offer you the flexibility to invest money monthly. Opening a recurring deposit account at your nearest financial institution or even at the post office is possible. Recurring deposits from financial institutions have a minimum tenor of six months and a maximum tenor of 10 years. Remember that interest earned on them is taxable.
4. National Savings Certificate (NSC)
This investment option has a tenor of 5 years. Then, all you need to do is visit your post office and complete a simple application process. An advantage ofNSCsis that you can claim tax exemptions under section 80C of the Income Tax Act. But, again, the interest earned is taxable.
5. Liquid funds
Liquid funds are a type of mutual fund that invest your money in short-term government certificates or securities. An investor can withdraw money from these funds at any time. However, it is not prudent to allocate your emergency funds into this option, because gaining complete access to your cash back takes around 2 or 3 days.
Liquid fundsoffer you a higher interest rate of up to 7%. Moreover, since the money in these funds is invested in money market instruments, you can expect a comparatively higher amount of security for your investment.
6. Investments in NCD's/ Corporate or Company Deposits
Non-Convertible Debentures(NCDs) and corporate/company deposits are issued by companies to raise capital. They offer higher interest rates than traditional bank FDs. However, it's crucial to research the issuer's creditworthiness before investing in these instruments.
7. Treasury Securities
Government securities, like Treasury Bills (T-Bills), are highly secure short-term investments. They are issued by the Reserve Bank of India (RBI) on behalf of the government. T-Bills come in various tenures and are an excellent option for risk-averse investors.
8. Post-Office Time Deposits
Similar to FDs, post-office time deposits offer fixed interest rates and varioustenureoptions. They are considered a safe investment choice and can be opened at any post office branch across India.
How Short-Term Investments Work
Short-term investments are financial instruments designed for a brief investment horizon, typically ranging from a few months to a few years. They operate on the principle of preserving capital while generating reasonable returns in a relatively short period. Here's how they work:
- Liquidity and Accessibility:Short-term investments emphasizeliquidity, allowing investors to access their funds quickly and without significant penalties. This makes them suitable for short-term financial goals and unforeseen expenses.
- Investment Options:Short-term investments encompass a variety of options, such as Savings account, Fixed deposits, Recurring deposits, National Savings Certificate, Liquid Funds, Investments in NCD's/ Corporate or Company Deposits, Treasury Securities, Post-Office Time Deposits. These options differ in terms of risk and return potential.
- Returns:Short-term investments typically offer lower returns compared to long-term options like stocks. However, they provide stability and capital preservation.
Highlights of Good Short-Term Investments
Choosing the right short-term investments can make a significant difference in achieving your financial goals. Here are some key highlights of good short-term investments:
- Safety:Opt for investments that prioritise the safety of your principal amount.
- Liquidity:Look for investments that offer easy access to your funds without incurring substantial penalties. Liquid funds and savings accounts are known for their high liquidity.
- Risk-Adjusted Returns:Evaluate investments based on their risk-return profiles. Understand that some options, like equity-linked investments, might offer higher returns but come with higher risk.
- Suitability:Ensure that your chosen short-term investments align with your financial goals and investment horizon.
What makes a good short-term investment?
- Liquidity:A good short-term investment should be easily convertible to cash, providing quick access to funds when needed.
- Low Risk:Minimising risk is crucial for short-term investments; opt for instruments with lower volatility and stable returns.
- Short Maturity Period:Choose investments with shorter time frames, aligning with your specific financial goals and minimising exposure to market fluctuations.
- Interest Rates:Consider investments with competitive interest rates to ensure optimal returns within the chosen short time horizon.
- Safety and Security:Prioritise safety by selecting instruments issued by reputable entities or backed by government guarantees.
- Diversification:Diversify short-term investments across various instruments to spread risk and enhance overall portfolio stability.
- Tax Efficiency:Explore tax-efficient short-term investment options to maximise returns after accounting for applicable taxes.
- Ease of Management:Opt for investments that are easy to manage, requiring minimal ongoing attention and administrative efforts.
Conclusion
In conclusion, short-term investments are an integral part of financial planning, providing flexibility, liquidity, and capital preservation. By understanding how they work, assessing your requirements, and focusing on the highlights of good short-term investments, you can make informed decisions to achieve your short-term financial objectives.
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Frequently Asked Questions
What is the Digital FD offered by Bajaj Finance?
Bajaj Finance has launched a new FD type called "Bajaj Finance Digital FD" for a period of 42 months. Bajaj Finance is providing one of the highest interest rates of up to 8.85% p.a. for senior citizens and for the customers below the age of 60 they are providing up to 8.60% p.a. The Digital FD can be booked and managed only through the Bajaj Finserv website or app.
What is the tenure of Short-Term Investment Plans?
Short-term investment plans typically have a tenure ranging from a few days to a few years, providing flexibility for investors with varying financial goals and timeframes.
Which short-term investment plan can give the highest return?
Identifying the short-term investment plan with the highest return depends on factors like risk tolerance and market conditions.
What are some examples of short-term investment?
Examples of short-term investments include money market funds, FDs, certificates of deposit (CDs), and short-term government or corporate bonds.
What is a short-term debt fund?
A short-term debt fund is a type of mutual fund that primarily invests in debt securities with shorter maturities, providing potential returns while managing interest rate risks.
Is a short-term investment an asset?
Yes, a short-term investment is considered an asset as it holds intrinsic value and has the potential to generate returns or be converted into cash.
Which is the safest short-term investment?
Generally, safer short-term investments include government securities, high-quality corporate bonds, and money market funds, providing stability and reduced risk.
What are the benefits of investing in short-term investment?
Benefits of short-term investments include liquidity, reduced exposure to market volatility, and the ability to meet immediate financial needs, making them suitable for specific financial goals and risk appetites.
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