Table of Contents
What is a Short Term Investment?
A short term investment refers to the allocation of funds into financial instruments characterized by relatively brief maturity periods, typically spanning from a few days to several months. The primary objective of short-term investing is to generate returns while preserving the capital invested. Common options for short-term investments include Fixed Deposits (FDs), Recurring Deposits (RDs), Treasury Bills, Money Market Funds, and Short-term Bonds.
Advantages of Short Term Investment Plans
Investing in short term instruments or short term money investments provides several benefits:
- Tax Distribution: You can distribute your tax liability over five years, avoiding the burden of paying a substantial amount in a single financial year.
- Peace of Mind: Smoother tax payments align better with your financial goals, reducing stress and uncertainty.
- Financial Protection: Short-term investments offer financial protection for your family in case of unforeseen events.
Best Short term investment plans in India
There are many best short term investment options in India in 2024. Let us See in Detail.
Real Estate Structured Debt
Real estate structured debt is one of the best investment options in India for short term. This option presents fixed income possibilities, underpinned by real estate assets used as collateral. It ranks among the top short-term investment opportunities, offering robust potential for high returns in India. Through alternative investment platforms such as Assetmonk, investors can participate with a minimum investment horizon of 36 months.
This investment avenue particularly caters to senior citizens in India, providing them with a consistent stream of monthly income in the form of fixed returns. It is also one of the best short term tax saving investment in India.
Derivative, Commodities & Stocks Market
Derivatives, Commodities and stocks present short-term investment opportunities are another best investment options in India for the short term with the potential for high returns. Unlike certain investments, there are no mandatory holding periods for these assets, granting the flexibility to enter and exit at will.
Nonetheless, it’s crucial to acknowledge that these investments carry substantial risks, necessitating caution. Thus, unless your risk tolerance aligns with such options, it’s advisable to stick to investments offering more stable returns.
Equity Mutual Funds
Investing in equity mutual funds for durations of less than five years is possible. However, considering the inherent volatility in equity markets, it’s prudent to maintain a longer investment horizon. Despite allowing withdrawals after just 12 months, early redemption may expose your capital to potential losses.
Systematic Investment Plans (SIPs) stand as a preferable mode for investing in equity funds. This approach involves regular fixed investments, leading to a lower average unit cost compared to market rates, potentially increasing profitability.
National Savings Certificate (NSC)
The National Savings Certificate represents a five-year deposit scheme with interest payments upon maturity. Meanwhile, if needed urgently, you can trade the certificate with other investors.
Corporate Deposits (CD)
Corporate deposits, albeit carrying higher risk compared to FDs or debt mutual funds, offer the prospect of higher returns. Investment durations can vary, providing flexibility.
CD exit regulations closely resemble those of bank FDs, and early withdrawals may result in a partial loss of interest earnings.
Debt Mutual Funds
Debt mutual funds stand as an ideal choice for investments with durations of less than five years but exceeding three years. These funds offer variable returns linked to market conditions, while many maintain capital preservation despite market volatility.
To benefit from long-term capital gain provisions, it’s advisable to hold these investments for a minimum of three years. Additionally, early withdrawals from most debt funds may incur exit load charges if made before 36 months.
Liquid Mutual Funds & Short-Term Funds
Liquid mutual funds, ultra-short-term funds, and money market funds constitute mutual funds that primarily invest in short-term securities. Liquid mutual funds emerge as an excellent choice for short-term investments due to specific attributes:
- Potential for money market-linked returns.
- High liquidity with the ability to withdraw within one business day (T+1).
- Absence of exit charges.
If you seek higher returns over an indeterminate short period, liquid funds offer an optimal investment avenue. However, it’s important to note that capital gains from withdrawals made within 36 months of investment are added to your taxable income.
Recurring Deposits (RD)
Recurring deposits represent another traditional and secure investment avenue. RDs enable regular contributions of small amounts, fostering the gradual accumulation of a substantial corpus. These deposits can be initiated through your bank, using your savings account, or at post office branches.
Periodic RD deposits allow for incremental savings and the creation of a corpus over a span of 60 months.
Fixed Deposits (FD)
Fixed deposits rank among India’s most favored secure investment options. An advantageous aspect is the ease of initiating FDs directly via your bank account, simplifying the process of stowing away surplus funds for short durations.
In contemporary times, FDs can be opened for durations ranging from 7 days to up to 10 years. Post office FDs also provide competitive returns and feature no Tax Deducted at Source (TDS).
Treasury securities, commonly known as T-bills, represent government-backed short-term money-market instruments. The Reserve Bank of India (RBI) issues T-bills through open market operations (OMO). These zero-coupon bonds mature in 91, 184, or 364 days.
T-bills offer capital safety and consistent returns within a one-year maturity period, with the added benefit of tradability for swift access to funds.
Savings accounts stand as the most prevalent and versatile choice for short-term investments. Notably, the convenience of debit cards linked to savings accounts enhances their appeal. Nevertheless, if you intend to set aside funds for specific future expenses, exploring other investment avenues is advisable.
Given that savings accounts often serve as the hub for various expenses, there’s a risk of unintentionally diminishing your lump sum balance.
Factors to Consider Before Investing in Short Term Investment Plans
When selecting a short term investment, aiming for the ideal combination of safety, liquidity, and tax efficiency is crucial. The best short term investments typically possess the following qualities:
- Capital Safety: Opt for investments that safeguard your principal, such as savings accounts, liquid funds, or treasury bills. Protecting your invested capital is vital, especially when you may need to access the funds for uncertain durations or specific goals.
- Liquidity: Ensure your investment remains liquid, allowing you to convert it back to cash easily. Locking in your funds for a defined period contradicts the purpose of a short term investment.
- Tax Considerations: While the primary goal of short-term investments may not be to generate substantial interest or capital gains, it’s advantageous to minimize tax liabilities. Understand the tax implications, including income tax on interest earnings and capital gains tax for withdrawals, both short term and long term.
Best Short Term Investment Options in 2024
There are many short term money investment plans in India. Let us see below in the table.
|Return Rate (in %)
|Real estate structured debt
|Derivatives, Commodities, Stocks Market
|< than a day – no limit
|Equity Mutual Funds
|1 year – No limit
|7- 15% per annum
|National Savings Certificate (NSC)
|6.8% per annum
|Corporate Deposits (CD)
|6 – 12% per annum
|Debt Mutual Funds
|36 months-No limit
|6- 9% per annum.
|Liquid Mutual Funds
|A day-No limit
|2 to 6% per annum
|6 months to 10 years
|4 to 8% per annum
|7 days-10 years
|2.5 to 8% per annum
|7.5% per annum
|2- 7% per annum
Operation of Short Term Investment Plans
- Short term investment plans involve allocating funds into money market securities such as treasury bills and corporate bonds nearing maturity, among other financial instruments.
- The primary aim is to earn interest on surplus funds while preserving liquidity.
Such plans typically offer:
- Higher returns compared to savings or current accounts.
- On-demand withdrawals.
- Capital protection.
Additionally, these investments aid banks, businesses, and governments in maintaining liquidity, while investors can generate interest on funds that would otherwise remain idle.
Features of Short Term Investments
Key characteristics of short term investments include:
- Absence of a fixed maturity period.
- No lock-in requirements for partial or complete withdrawals.
- Relatively low but stable returns on investment.
- Minimal investment risk.
Tenure of Short Term Investment Plans
The tenure of short term money investments or short term high yield investments typically ranges from between 3 years to to 10 years, making them well-suited for achieving short term life goals. In investment terms, any security that can be easily converted to cash within 12 months qualifies as a short term investment option.
For instance, if you plan for your daughter’s wedding at age 25 but she decides to wait until age 30, you still have five years to utilize the accumulated funds. Therefore, the duration of investment plans varies according to individual preferences and specific financial objectives.
But where to invest money for the short term?
The foremost objective when selecting any short-term investment is the preservation of capital while potentially accruing interest. For instance, when establishing an emergency fund, prioritizing the safest options, such as high-yield savings accounts, fixed deposits, and liquid funds, is essential. It’s paramount to avoid allocating emergency funds to equity stocks, commodities, or derivatives, despite their liquidity advantages.
Assetmonk distinguishes itself as an outstanding alternative investment platform in India, presenting a diverse range of appealing options for astute investors. Within these opportunities, individuals can delve into the domain of structured debt investments within the commercial real estate sector and a carefully curated assortment of alternative investment selections. Assetmonk offers exclusive and customized investment possibilities to its esteemed clientele, with a minimum investment requirement of 10 lakhs and a guaranteed Internal Rate of Return (IRR) of 17 percent.
- Best Long Term Investments With Higher Returns
- Structured Debt Backed by Real Estate vs. Debt Mutual Funds: Exploring Risk and Yield Potential
- Best Investment Options in India to get Higher Returns
Q1. Is a short term investment plan an asset?
A. Yes. These can especially be converted to cash in a short period.
Q2. What is a short term debt fund?
A. A short-term debt fund is a diversified investment vehicle that focuses on debt securities, such as corporate bonds and government bonds. This strategy enables the fund to achieve greater returns compared to money market funds while maintaining a similar level of safety. To enhance liquidity, short-term debt funds may allocate a significant portion of their portfolio to money market securities. These funds are alternatively referred to as income funds.
Q3. What are some examples of short term investment?
A. Some examples of short-term investments are real estate structured debt, T-bills, and savings accounts.