First of all, let’s understand what “short-term investments” are and why you want to invest in the short term.
When it comes to investing, there are two main types of strategies: short-term and long-term. A short-term investment is an investment that is expected to be turned over in a few years or less. Anything more than 5 years can’t be considered a short-term investment.
They are the assets you can quickly sell to use the money for another purpose. The main goal of a short-term investment for both corporates and individuals is to save their capital while generating returns on the same.
This type of investment is typically seen as less risky than a long-term investment, which is an investment that is not expected to be turned over for several years. On the contrary, in short-term investments, you get easy excess to your money sooner by completing limited formalities.
So why do you need a short-term investment in your investment portfolio? You may need these kinds of investments to fulfil several short-term goals. For example:
To develop the habit of saving – If you are starting in your career, you would want to develop a habit of keeping some of your income aside as savings.
To save for a down payment on a house or vehicle.
To save for a yearly vacation.
To avoid the market risk of long-term investment.
To save for buying an expensive piece of jewellery or gadget.
List of Top 10 Short-term Investment Options in India
When it comes to investing for the short term, investors can find multiple options where they can invest their money. The top 10 available prospects in India are:
1
Until you get hold of the more complicated investment options, a savings account is a safe place to park your money temporarily. It's a bank account that allows you to earn interest on your money.
There are different types of savings accounts. But they all have one thing in common - you deposit your cash into them and then earn interest on it until you take it out again.
It's the safest option to preserve your capital and earn decent returns with interest. Isn't it a win-win! The interest rates for savings accounts vary since they depend on the institution.
Usually, the interest rates range from 3.5% to 7%* per annum. In addition, you also get the comfort of 100% digital banking, allowing you to access all the major banking features from the comfort of your home.
Takeaway: Open a savings account if you want accessibility, safety, & reasonably Good Interest Rate!
2
Arbitrage is the simultaneous buying and selling of an asset in different markets to take advantage of price discrepancies. Thus arbitrage mutual funds work by taking advantage of price discrepancies in different markets. By buying low in one market and selling high in another, these funds can earn a profit while mitigating risk.
For example, if you buy a stock for $10 in one market and sell it for $11 in another, you would earn a profit through arbitrage.
Mutual funds focusing on arbitrage seek to take advantage of these price discrepancies across different markets.
Takeaway: Invest in mutual funds for arbitrage if you prefer quick results and calculated risks!
3
Recurring deposits allow you to make regular deposits to your account, usually at the same time every month or quarter. These are different from the traditional savings account, where you deposit cash at any time, and then it is available for withdrawal at any time.
The interest rates offered by recurring deposits range from 3.50% to 6.25%. You can specify when your money will be paid out with recurring deposits. You don't have to worry about losing your money if you miss a scheduled withdrawal date because it's locked away until the following month.
Also, your funds are automatically transferred into your RD account from your savings account each month without any additional effort (unless you choose to do so). This means no more worrying about forgetting to add money to your account or missing a monthly 'transfer deadline!
Takeaway: Choose recurring deposits for convenience, good interest rates, and the safety of your money!
4
Corporate deposits are one of the most popular investment products for individuals and businesses. The concept for these is similar to fixed deposits. But the interest rates you can earn under this scheme are better than fixed deposits or savings accounts.
Moreover, you can use corporate deposits to pay expenses, such as taxes or rent, without withdrawing cash from your account. They can also be used as collateral for loans, which can help you get better terms on loans.
Takeaway: By investing in corporate deposits, you get higher interest rates & a multifunctional financial tool.
5
Treasury security is a bond issued by India's government, backed by its full faith and credit. These bonds are also known as government securities, government bills, or Issue bonds.
These bonds offer a fixed interest rate for a specified period. They are called floating rate bonds when the interest rate on them changes from time to time. The bond's maturity date can be between 3 months and 30 years. Interest is paid only when the bond matures and at maturity. Interest rates for these treasury securities are between 3 to 8%.
Treasury securities have several advantages over other types of investments, such as bank deposits and fixed deposits - They are easy to understand because they carry a fixed yield or return. They are attractive because they offer a higher rate of return than other investment options.
They have a lower risk than stocks since their value is not based on any single company's performance.
Takeaway: Get the treasury security bond to have Govt. authorised secured bonds with higher interest rates & the freedom to use them for either short-term or long-term investments.
6
Peer-to-peer lending is a new way of making money that has recently become popular. It is also known as P2P lending - An investment option offered to both borrowers and lenders.
Peer-to-peer lending is a popular term that refers to the process of lending money directly between two individuals. No middlemen are involved in the process, meaning every time you lend someone money, the interest you earn remains yours.
Peer-to-peer loans are typically made via an online platform where investors can browse through different lenders and choose to whom they want to lend money. The interest rates on these loans vary depending on the lender and borrower, but they usually range from 4%-7% per year.
You can use P2P lending to buy a home or car, pay credit card bills, repay student loans, or invest in stocks and mutual funds. Fewer fees are involved, as no banks are involved in the process. All transactions occur directly between lenders and borrowers.
Takeaway: Peer-to-peer is your kind of investment if you believe in direct dealing, easy processes, and saving for a short-term financial goal.
7
8
National Savings Certificate (NSC) is a tax-free investment scheme introduced in India for the benefit of savings depositors. You can invest in NSC to earn higher returns in India than other short-term investments.
The scheme currently offers you a return of 6.8% per annum. It has a maturity period ranging from 3 to 5 years. To qualify for NSC, you must be above 18 years of age and a resident Indian citizen.
Apart from being tax-free, it's a safe and secure way to invest your money. When you invest in an NSC, you are guaranteed to get your investment back plus interest. NSCs are a flexible investment. You can cash in your NSC at any time without penalty. This makes them an excellent option for people who need access to their money quickly.
Takeaway: Get an NSC if your goal is to save taxes, make a low-risk investment, and get quick redemption.
9
A post office time deposit is a savings account that offers you a higher interest rate than a regular savings account. The money in the account is still accessible, but you cannot withdraw it for a set period. This can be anywhere from six months to five years.
The advantage of a post office time deposit is that you earn more interest on your money. This can help you reach your financial goals more quickly. If you want a safe place to invest your money and grow it over time, then a post office time deposit may be suitable for you.
Talk to your local post office or financial institution to learn more about this type of account and how it can benefit you.
Takeaway: Park your money in post office time deposits for higher interest rates and safety.
10
A liquid exchange traded scheme, popularly known as liquid bees, is an investment vehicle that allows investors to trade in a basket of securities in a single transaction. The scheme enables investors to take advantage of the liquidity of the underlying securities while also providing them with the flexibility to choose the mix of securities they wish to trade in.
The scheme was first launched in India in 2007 and has since become one of the most popular investment vehicles in the country. Liquid bees are particularly popular with retail investors. This is because they are low in cost compared to other investment products in India.
Liquidbees ETFs offer diversification across sectors and companies, which reduces risk and helps generate higher returns. Moreover, they are super convenient, as they can be bought and sold just like any other stock exchange stock.
Takeaway: Liquidbees ETF is well-known for its flexibility, easy redemption, and calculated risk.
Advantages and Disadvantages of Short-Term Investments
Short Term Investments Vs. Long Term Investments
Long-term investments are totally different from short-term investments in terms of return, tenure, and risk factors.
Long-term investments demand commitment and patience from you for years to see ROI. Short-term investments give you quick returns to fulfil your short-term goal.
There is no patience required to invest in the short term as the returns are almost guaranteed, and the investment time is less. However, the returns on short-term investments are not as significant as on long-term investments. Therefore it’s a common practice to invest the funds collected through short-term investment in long-term investments to build wealth.
Long-term investments include gold, real estate, stocks, etc. And the short-term investments are the accounts and deposits mentioned in this post.
FAQs
Investing your money in short-term investments can be a great way to secure your financial future and earn some quick profits. However, it’s important to remember that not all investments are created equal. Thus, always research before investing money, and diversify your portfolio to minimise risk.
