Short Term Investments Options

Key Highlights of Short-Term Investment 

Some of the key highlights of short-term investments are: 

1. Low risk factor, which keeps your fund safe from huge loss due to market fluctuations 
2. High rate of liquidity, thereby making your fund accessible in times of financial emergency 
3. Low investment time that enables one to investment anytime 
4. Provides optimum returns for considerably less investment amount 

1. Enables depositors to start the investment plan at a low investment amount 
   

Types of Short-term Investment 

The following are the types of short-term investments available in India are: 

1. Savings Account 
2. Recurring Deposit 

1. Fixed Deposit 
2. Liquid Funds 
3. National Savings Certificate (NSC) 
4. Post-Office Time Deposit 
5. Money Market Account 

1. Debt Instrument 
2. Large Cap Mutual Funds 
   

Other Short-term Investment Options 

The following are some of the other short-term investment options: 

1. Gold or Silver: Investment in gold or silver offers high returns as the price of the precious metals keeps increasing in a short span of time. This is one of the risk-free investments and a secure option for short-term investment. 

1. Stock Market or Derivatives: Depending upon the financial objectives of the investor, this investment, such as Shares, commodities, and derivatives are preferrable for those individuals who possess high risk appetite and good market knowledge. 
2. Investments in NCD's or Corporate or Company Deposits: NCD (Non-convertible debentures) or a company deposit offered this scheme for securing your capital and offers interest rates ranging between 9.00% and 12.00%. 
3. Treasury Securities: These investment schemes offer satisfying returns, high liquidity, and ensure the safety of your funds and the maturity date ranges between 91 days to 365 days. 

There are many 1-year investment plans you can invest in. Let us look through 5 short-term investment schemes: 

Recurring Deposits (RD)

A recurring deposit is a very common short-term investment option. This scheme allows you to earn a fixed rate of interest on your invested amount until the date of. You can easily open your recurring deposit (RD) account by logging into the bank's net banking portal.

Features of recurring deposits:

The following are the features of recurring deposits: 

1. Rate of return: 4% to 6% per year
2. Duration: 6 months to 10 years
3. Taxability: The interest you earn is taxed according to your tax slab after adding to your income.
   

Savings Account

A savings account is a popular short-term investment plan. You can deposit your money in a bank/financial institution and you earn interest on the balance in your account. This offers liquidity and you can withdraw the money you have invested at any time. There is no limit on the amount you can deposit, and a lot of banks offer zero balance accounts.

Features of savings accounts:

The following are the features of savings accounts: 

1. Rate of return: 3.5% to 7%- different for all banks.
2. Duration: Unlimited
3. Taxability: The interest you earn is taxed according to your tax slab after adding to your income.
   

Fixed Deposits (FD)

A fixed deposit is where you invest an amount for a specific time range that can be between 5 years and 10 years. This will automatically mature and you can withdraw the amount. The interest rates are higher for a fixed deposit as compared to savings accounts and recurring deposits. You cannot make any early withdrawal of the amount.

Features of fixed deposits:

The following are the features of fixed deposits: 

1. Rate of return: 2.5% to 5.5% per annum
2. Duration: 7 days to 10 years
3. Taxability: The interest you earn is taxed according to your tax slab after adding to your income.

Liquid Funds 

This is one of the types of mutual funds that invest your funds in short-term government certificates or securities and enables users to withdraw funds anytime. Though funds can be withdrawn any time, it is not a suitable option to consider for emergency fund requirement as it takes some time to process for cash back. 

Features of Liquid Funds: 

The following are the significant features of liquid funds: 

1. Rate of return: 7.00% 
2. Processing for cash back is two to three days 
3. Taxability: Taxable under short term capital gains tax, if liquid fund units are sold that are held for less than three years and taxed at 15% plus cess and surcharges. 
   

National Savings Certificate (NSC)

A National Savings Certificate (NSC) is a short-term tax-saving investment plan. This is available at post offices. This is a government-backed scheme and so, it has a low risk. This scheme gives fixed returns and the interest rates of the scheme are subject to change which is based on the decisions taken by the Finance Ministry.

Features of National Savings Certificate (NSC):

The following are the features of National Savings Certificate (NSC): 

1. Rate of return: 6.8%
2. Duration: 5 years
3. Taxability: When you invest in a 5-year NSC, you get a tax benefit under Section 80C of the IT Act. The interest income will be taxable.

Post-Office Time Deposit 

Post Office fixed deposits or Post-office time deposits is one of the most preferred short-term investment plans that offers guaranteed returns, which is offered by India Post. These time deposit schemes are available in all Post Office branches across the country and is preferred mostly by the population of rural and remote areas of India. 

Features of Post-Office Time Deposit 

The following are the key features of Post-Office Time Deposit: 

1. These deposit schemes offer 5.50% for one year, two years, and three years, and 6.70% for five years. 
2. Interest rate is applicable on yearly basis on the deposit amount 
3. Premature withdrawal is not allowed before completion of six months 
4. The interest earned is taxed as per applicable tax slab rate as the income from interest rate is added to the income of the individual 

Money Market Account (MMF) 

Money market accounts that are considered as one of the most prefered short-term investment options, are deisgned to provide the security of capital along with high returns. These low risk mutual funds also known as liquid funds have high liquidity rate and comes with no lock-in period and matures in 91 days. 

Features of Market Account 

The following are the features of market account: 

1. Tenure of money maret account is less than 13 months 

1. Offers high liquidity and can be redeemed anytime whenever you need emergency fund 
2. The interest rate on MMF is 7.00% per annum 
3. The profit is taxable at 20% post-indexation if the investment is made above 36 months 

Debt Mutual Funds 

A mutual fund invests your money in debt instruments like treasury bills, government bonds, corporate bonds, and commercial papers. This is a short-term investment if you are risk-averse and want short-term returns. 

Features of mutual funds: 

The following are the features of mutual funds: 

1. Rate of return:  8% to 11% per annum 
2. Duration:  6 months to 3 years 
3. Taxability:  Short-term mutual funds are calculated when you redeem your units within three years. Long-term capital gains will be levied if it is held for over three years. 

Large Cap Mutual Funds 

To achieve substantial growth in a shorter period of time large-cap mutual funds are one of the most preferred short-term investment plans. The investment is made mostly in the stocks of large business organizations and offers returns in one to three years of investment tenure. 

Features of Large Cap mutual funds: 

The following are the features of large cap mutual funds: 

1. Tenure of large cap mutual funds investments ranges between three to five years 
2. Offers high liquidity along with high return value after maturity 
3. Low risk involved in large cap mutual funds 
4. Return value is 8.00% to 13.00% 
5. The capital gains earned on the fund held for three years is subject to the Lhort-term capital gain tax (LTCG) 

How Does Short-Term Investment Operates? 

Here is how short-term investment works: 

1. Short-term investment are suitable for short-term financial goals as they offer high liquidity and without imposing penalties. 
2. Depending on risk potential and return values, short-term investment available in the market are recurring deposit, fixed deposit, savings account, Post Office time deposits, corporate deposit, liquid funds, NSC, and treasury securities. 
3. Though short-term investment offer stability and capital preservation, the return value is low compared to long-term investment. 

Requirements for Short Term Investments 

The two most basic requirements for short-term investments are: 

1. Offering liquidity -  The marketable equity securities are liquid fund and are also known as short term investment options, and bonds that mature within specified time frame are also considered as short term investment. 
2. Investment made in short duration of 12 months - One of the other most basic requirements of is short duration that is maturity less than 12 months. 

How to Identify Good Short-Term Investment? 

The following are the significant points that determines which short-term investments are worthy of investment: 

1. Suitability - Research before investing in a fund so that your investment alligns well with your financial goals. 
2. Liquidity - Opt for those investement that offer high liquidty without imposing substantial penalties, thereby allowing you to access your fund anytime. 
3. Safety - Select only those short-term investment options that ensures complete safety of your principal amount. 
4. Risk-Adjusted Returns - To identify which short-term investments are preferrable, evaluate their risk-return profile, as investments like equity-linked investments offers higher investments but comes with higher risk retunrs.