Through this blog, we shall make you aware as to What is a Short term Investment? You will also become familiar with some of the most popular and Best Short Term Investment Options in India. So, are you ready to take dive deep into the short term investments in India.
What is a Short Term Investment? Meaning
As the name itself suggests, Short term Investment is one where money is invested for a shorter period in order to meet your short term objectives.
Now, what do you mean by Short term? Simply speaking, short term can range anything from few days to few months to few years as per your requirements and financial objectives. But, generally a period of 1-3 years is defined as short term.
In simple language, a short term investment plan is where the money is invested for a short period of time ranging from few days to a maximum of 3 years. However, there might be differentiated opinions where a period upto 5 years might be termed as short term.
Short term investments are usually done with a lesser amount of money. The motive is to yield a constant or slightly variable returns but not so high returns, with relatively lower risk factor involved.
However, if you tend to invest fairly larger amounts but only for a shorter period, you can’t expect to get very high returns. To reap good benefits you need to widen your risk horizon and think and plan for your long term investments as well.
Short Term Investments: Objectives
Now coming to the point, your short term objectives might include anything ranging from:
- Buying your favourite car say after 2 years.
- Renovation/expansion of your house next year.
- Purchase of trendy furniture or new electronic items.
- Planning to go for higher studies in the next few years.
- A family vacation in India or abroad after a year or so.
- Buying a gold necklace/a diamond ring or a beautiful present for your wife on her birthday (Just like a loving husband would do).
- Or any of your other short term goals for that matter…and the list goes on…
So, firstly you have to make yourself clear that short term goals are the ones which you want to achieve in a shorter duration. And, these can be met only if you have some money parked in short term investments.
Further, your Short term investment plans should give you flexibility to withdraw funds in the shorter period. This means, it should be easier for you to convert them into cash as and when required. So, short term investment plans help to attain your short term goals in an effective and meaningful manner, wherein there is an easy facility to convert your investments to cash.
Hence, we shall be highlighting 7 Short term Investment options comprising of both risk free and risky options, for you to choose from.
Keep reading further to know the details…
Before that, have a look at the estimated returns from each of the below mentioned Short Term Investment Options in India.
|Investment Option||Estimated Yearly Returns|
|Savings Bank Account||4-6%|
|Short-term Fixed Deposits (FD)||6-8%|
|Short-term Mutual Funds||7-9%|
|Fixed Maturity Plans||10-12%|
|Equity Linked Savings Scheme (ELSS)||12-14%|
Explore all the investment options, select the one that fits in your Financial portfolio and make it the best for you. Individual preferences may differ based on your financial goals. You and your friend might have different financial goals to achieve and hence your short term investment choice may vary.
This is a bit lengthy post, so just grab yourself a cup of tea or coffee to accompany you and keep adding to your knowledge…
7 Best Short Term Investment Options in India:
Here’s a list of some popular ways in which you can invest money for short term in India:
1. Savings Bank Account:
The simplest and the easiest way is to keep your money in a Savings Bank Account. The biggest advantage of putting your money in a Savings Account is that there is zero risk percentage. The returns may not be so high but it is a highly liquid investment. You can get ready cash as and when need arises.
Moreover, with facilities like net banking, ATM cards, and quick online services you can easily access your money anywhere and any time. Public sector banks normally have low minimum balance requirement as compared to private sector banks. But, as far as customer service is concerned, private banks generally win the race.
Banks usually provide interest ranging from 4% to 6% on such saving accounts. Interest is credited quarterly or annually into your savings account as per the bank rules.
As per Section 80TTA of Income Tax Act, an Individual and HUF can claim a deduction of upto Rs.10000 on interest earned. The Interest on your saving account in excess of Rs.10000 shall be taxable as “Income from Other Sources” at the prevailing tax slabs. This deduction is over and above the Tax deduction U/s 80C that is restricted to Rs.1.5 lakhs.
Of course, savings bank account is one of the common short term investment alternatives. And the most liquid and convenient of them all! But, this can help you to some extent only! After reading about the big banking frauds in India like Yes bank and PNB scam, it’s quite natural to get scared and hesitant to put your money even in a bank.
2. Short Term Fixed Deposits (FDs):
Keeping your surplus money in the form of Fixed Deposits has also been a traditional practice that has been followed since ages. Your grandparents’ most trusted way of investing money. “Open an FD and earn interest over the years”, that’s a general scenario to be seen in Indian households.
So, how you invest money in fixed deposits? You can give your money to the bank for a specific period ranging from few days to 10 years. The amount will yield a fixed rate of interest ranging from 7-8% depending upon the bank scheme and duration of FD. Banks usually provide FD investors with high interest rates than a regular saving accounts.
But, one thing you have to be clear about is that Fixed deposits are not inflation beating instruments. The FD interest rates of 7-8% that you hear about are pre tax rates. Banks deduct TDS on Fixed Deposits where the interest exceeds Rs.40,000 per year (Rs.50,000 for senior citizens). Earlier this TDS limit used to be Rs.10,000 only.
Fixed Deposit is normally a good investment option for Senior citizens who hesitate to take any risk. Moreover, now you can book as well as redeem FDs online and prevent yourself from the hassle of standing in long queues in the bank. As and when you redeem an FD online, you get the amount credited to your savings account.
You can also opt for Tax saving FDs that will give you tax benefits as well. But, tax saving FDs are for a minimum of 5 years so if you have to meet your short term goals, these might not be the perfect fit for you.
To have a deeper insight on tax saving FDs you can refer: Tax Saving FD -one of the popular tax saving option!
3. Short Term Mutual Funds:
In India many people are still reluctant to invest in mutual funds. But, it can prove to be a good short term investment option if you are ready to take some risk and chose to diversify your funds.
Mutual funds are instruments that pool in savings of various investors to invest them in shares, debt securities, money market securities etc.
In simple words, Mutual funds further invest your money in:
- Debt Instruments – Debt Mutual Funds.
- Equity – Equity Mutual Funds.
Debt funds are considered a relatively safer option because of their underlying asset i.e. debt. But, based on historical data, Equity funds generate higher returns and that too if money is invested for a longer duration.
“Mutual funds are subject to market risk” and that is true. There is always some risk attached while investing in mutual funds. But, the right asset allocation can help you build a strong Financial portfolio.
You can go in for short term debt funds having an investment horizon of 6 to 18 months that generate regular returns for investors. This way you will bear less risk and yield better Return on Investment (ROI). Thus, Short term mutual funds are ideal for investment tenure of few months. SIP is usually considered as a good way of investing in mutual funds (preferably if you want to invest for longer period).
Stock investing is basically a long term investment option and requires a lot of patience and knowledge. So, mutual fund is a simpler way to invest your money that gives you access to professionally managed portfolios.
4. Liquid Funds:
These are mutual funds invested in short term government securities and certificate of deposits and have short maturity period of 4-91 days. In simple words, liquid funds can invest only in securities that mature up to 91 days.
Its easy to enter and exit from such liquid funds. They have high liquidity value and thus are are a more secure option for investment tenure of few days. The return on liquid funds ranges from 4%-10% that means they offer moderate returns depending upon your Investment portfolio.
This is a good short term investment option and an alternative to park your money to build an emergency fund. However, some risk is always attached while investing in any type of mutual funds. Based on past data, liquid funds generate higher returns than Fixed deposits.
Also, money lying in a saving bank account will fetch you around 4-6% only. While investing in liquid funds give you fair chances of getting higher returns as compared to a normal savings account.
You can Start a SIP in liquid funds to build an emergency fund equal to 3-6 months of your regular monthly expenses. Whenever need arises, this money can be used to meet your requirements.
5. Fixed Maturity Plans:
You can select Fixed Maturity Small Investment Plans to meet your short term goals. These are debt funds that invest in debt securities like treasury bills, certificate of deposits and government bonds etc.
FMPs invest in debt instruments having same maturity period. e.g. A 2 year FMP shall invest in debt instruments that will also mature in 2 years.
FMPs are close ended funds and are considered less riskier. You tend to get a decent return at the time of maturity. The major drawback is that you cannot withdraw money before the maturity period as compared to Fixed Deposits where you can encash your Fixed Deposit anytime before maturity.
However, Fixed Maturity Plans or FMPs are more tax efficient than Fixed Deposits.
6. Equity Linked Saving scheme (ELSS):
It is a tax saving mutual fund scheme where the minimum lockin period is 3 years. It is considered as one of the best investment option where the Long term Capital Gains are tax free upto certain limit. In simple words, long term capital gains from ELSS mutual funds are tax exempt upto Rs. 1 lakh only, and you don’t have to pay any tax on it. Beyond that, you’ll have to bear 10% LTCG tax benefit. So, ELSS isn’t a completely tax free investment instrument right now! (As it used to be earlier)
Also, being an equity linked scheme, risk is involved but the earning potential is also very high.
The minimum investment amount is Rs.500 only. ELSS or Equity Linked Saving Scheme is also qualified for tax deduction U/s 80 C upto a maximum of Rs.150000. Also, ELSS has the minimum lockin period as compared to other investments that are eligible for Tax deduction U/s 80C. Due to this investors are inclined towards investing in ELSS.
However, ELSS is considered as a good long term wealth creation tool that helps you grow your money in an effective manner.
7. Arbitrage Funds:
This is a better short term investment option for conservative investors, though many people are not aware about it. Simply stated, in case of an Arbitrage fund, the fund manager buys a stock (shares) in cash and sells the same in future market. The difference between the two is your return on investment.
Here, the profits are earned by exploiting price differences of financial instruments in two different markets. It is a variant of equity mutual fund but are not suited for long term wealth creation. These are basically low risk mutual funds and are best suited for investors having short term investment horizon like 1-3 years.
Short Term Investments in India: A Final Take
Hence, in order to accomplish your short term goals you can select any of these short term investment options. Keeping in mind your financial goals and expected returns, you should be careful while parking your funds for a short term.
You might not get very high returns while putting your money in short term investments or plans. But, you can always yield moderate returns by taking lesser risk and planning wisely.
To get higher returns, you need to diversify your funds and focus on your long term objectives as well. To guide you in your financial planning, you may also like to dig into the 7 Best Long term Investment Options in India
So, what are you waiting for? Get ready and make your best short term investment plans. Do share your valuable thoughts or any additional short term investment ideas that you have. It might be helpful to some potential investors. Do you have any other short term investment options to discuss? Feel free to give your valuable feedback in the comment section.
25 thoughts on “7 Best Short Term Investment Options in India”
I need money after 12 months and I am able to save approximately 1 lakh per month. I know I will get 6% if I will keep it in my savings account. I want good returns in 1 year. I can spend 1 lakhs per month for next one year.
I am an NRI. Kindly suggest.
Short term investment plans are the ones that return profits or dividends within a short span of time that can last from a few months to a year. These plans are supposed to be meeting immediate future expenses. Here are a few short term investments that can help you meet your financial goals:
Recurring Deposits- You can invest some small amount of money and with a good interest rate and the money reaches maturity within a given time period. The time period can last from six months to more than a year.
Money Market Account- They have a maturity period of 91 days. They provide high liquidity and can be redeemed quickly. Debt Instruments- High liquidity and with good returns.
Bank Fixed Deposits- It is the safest short term investment option. A lump sum of money deposited in the bank and return is provided at a fixed interest rate.
Post Office Time Deposits, Large Cap Mutual Funds and Stock Markets are some other short term investments you can invest your capital in.
Useful article about how to invest in different ways. Good one! Thank you!!
Arbitrage funds may be a good option for short-term investing with low risk.
Nice article! Thanks for sharing.
Nice advice for new investors having short-term horizon.Thanks!
Which short term investment plan to consider? I want to invest an amount of 1-2 lakhs for 1 year and have huge returns.
You have rightly pointed that Short term investment should be based on ones own financial goals.Thanks for sharing a good range of investing options.
Hi,Can you advise perfect short term investments with good returns.Also,if you can explain me about liquid funds. Thanks
I need money after 12 months and I am able to save approximately 1 lakh per month.I know I will get 6% if I will keep it in my saving account, I want good returns in 1 year.I can spend 1 lakhs per month for next one year.
I am an NRI. Kindly suggest.
Great info on short term investing.I also believe that equity mutual funds and stocks are good long term investing options.
I must say you have high quality and useful content here. Thanks for helping us with some great investment tools.
Very Informative Information
It is really simple info presented in an awesome as well as very helpful manner. I am just grateful that you simply embraced this useful information along with us. Please keep sharing great info like this.Thanks.
I want to invest 1 lac 1 time investment for 1 year.I am not able make my mind as well as plan.I don’t want to go for stock market,banks fds or rds. A moderate risk n high returns is what I aim to.
Looking at your needs,investing in mutual funds seems to be a better option.But,mutual funds are subject to market risk.Further,if you want to explore equity funds,you need to expand your investment horizon to get good returns.Based on historical data,Equity funds tend to perform better if money is invested for longer duration.Also,in such short period,you cannot expect very high returns but only moderate returns.
FDs will fetch you around 6-7% after tax return only.It all depends on your financial goals and risk taking ability.
I want to invest some money in short terms. Could you please suggest me the policy names.
I am not good to understand the below points :
1. Bank fixed deposits
2. Savings account
3. Money market accounts
4. Gold or silver
5. Short term debt funds
6. Large cap mutual funds
Just suggest me the investment names like jeevan anand.
We can provide general information only.Your investment should be based on your investment horizon and risk taking ability.If you want to play safe without taking any risk then FDs is the safest.But,if you can afford some risk you can go for liquid funds,short term debt funds etc. Also,gold and silver are a part of long term investing and not for shorter periods.
For specific investment plan or policy name you should refer a financial advisor.
I do not think ELSS is for short term investment. 70% of ELSS funds is required to invest in equity and equity in 3 years may give you good returns but the risk factor is high.
Equity mutual funds are never for short term investments. Its very risky.
Thanks for your feedback. We have already mentioned that ELSS involves risk and is a good long term wealth creation tool.It might not give very high returns in the short term but is a good tax saving tool. Its lockin period is 3 years only so we have considered it here.
The information provided by you is awesome.It has really helped me out. Thanks for the information. But I would like to add some point. I read about the Short Term Investments Which gave 6 Short Term Investments.
1. Bank fixed deposits
2. Savings account
3. Money market accounts
4. Gold or silver
5. Short term debt funds
6. Large cap mutual funds
Thanks for your appreciation.
Your point no.4 on Gold/silver is a good way of investing for long term.It might not give desired results in the short run.Rest options we have already discussed in detail.
Gold however does not provide with passive investments, further it is good when the economy is about to hit the inflation.
Short term investment in India work good and provide good returns. These investment options are perfect for India.
Systematic Investment plans are for long term investments which gives good returns at the end.