During a period of three to twelve months, short-term investments can be converted into cash. High-yield savings accounts, money market accounts, Treasury bills, and government bonds are some of the most popular short-term investments. All of these are reliable products with highly liquid assets.
What are Short Term investments?
Investments made in the short term are intended to yield sizeable profits in a time as short as a year or a few months. These programs are primarily concentrated on covering the anticipated short-term expenses.
Most often, investors who favor short-term investments aren’t very interested in waiting years to see their money multiply several times over. They want rapid and efficient outcomes instead. Plans for short-term investment can save them in this situation.
One can anticipate the best return possible with short-term investment plans to help them achieve their financial goals, but not the kind of significant returns possible with long-term investment possibilities. Short-term investment plans frequently top the popularity lists of seasoned investors due to the decreased risks they carry.
Short Term Investments Options
Below are some of the best short-term investment options in 2024.
Recurring Deposit
Tenure: One may open an RD account for a term of no more than 6 months and no more than 3-month increments up to 10 years.
Liquidity: A recurrent deposit system typically has a minimum lock-in duration of one month. Only the principal amount and no interest are provided to the depositors if the account is prematurely closed within one month.
Returns: One of the best short-term investment plans is the recurring deposit account, which offers the same interest rate as bank FDs. Currently, the interest rate for a tenure of up to 12 months is 6.5% per year. The interest will take effect as of the initial deposition date.
Taxation: The interest on an investment is added to the investor’s income and taxed at the applicable income slab rate. If the interest earned exceeds Rs. 10,000 in these short-term investment plans, TDS is subtracted.
Money Market Accounts
Money market accounts, also known as liquid funds, are an excellent option for short-term investments because they are made to provide you with capital security and respectable returns. These mutual funds have the lowest risk among all of them and the most liquidity because of their 91-day maturity time restriction. They also don’t have any lock-in periods.
Tenure: A money market account may be opened for a duration of fewer than 13 months.
Liquidity: High liquidity and speedy redemption are provided by this short-term investment plan choice.
Returns: Money market fund returns are neither guaranteed nor fixed. MMF currently provides a 7% annual interest rate. Investors should invest after matching their investment horizon to the maturities of the other investment securities in these funds to achieve the best results.
Taxation: in this short-term investment plan, the profit made on the amount invested is added to the investor’s income and taxed as such. The post-indexation tax rate for profits made on investments made for longer than 36 months is 20%.
Debt Instruments
Another excellent short-term investment option is debt instruments, particularly for those who are risk-averse. Debt mutual funds are a wonderful area to invest in since they secure capital and deliver positive rewards without worrying about market volatility. This is a solid option for short-term investment because it offers returns of up to 10.5%.
Short-term investment plan debt funds are classified into three types based on tenure.
Liquid fund: With this fund choice, investments are made in debt and money market securities with maturities of up to 91 days.
Ultra-short-duration fund: The money is invested in debt and money market securities for 3 to 6 months under the ultra-short-duration fund option.
Short-duration fund: Under this fund choice, funds are invested for 6-12 months in debt and money market securities.
Liquidity: High liquidity is offered by liquid debt funds for investing. In comparison to a savings account, the liquid debt fund offers a maximum maturity of 91 days and gives better yields.
Returns: Debt funds are registered as one of the greatest short-term investment strategies since they provide investors with steady returns at minimal risk. Debt funds currently offer an investment interest rate of 7-9
Taxation: Debt funds are subject to capital gains tax. The capital gains made on a fund that is held for a minimum of three years are subject to short-term capital gains tax (STCG). On capital gains made on a fund that has been held for a while greater than three years, long-term capital gain tax is applied.
Fixed Deposits in Banks
Fixed deposits, often known as short-term investments or savings instruments, allow a person to deposit a large sum of money into the bank for a predetermined amount of time. One of the safest short-term investing options is the fixed deposit or certificate of deposit scheme, which offers a fixed FD interest rate on investments and guarantees returns.
Tenure: Fixed deposit accounts have terms ranging from 7 days to 10 years, making them one of the safest short-term investment options. On maturity, the deposits can be renewed and reinvested.
Liquidity: The fixed deposit program manages reinvestment risk in addition to providing high investment liquidity.
Returns: At the end of the fund’s duration, returns on fixed deposit accounts are assured and come with a fixed interest rate. Fixed deposit interest rates currently range from 8% to 9% for investments lasting more than a year. Even in the event of market volatility, the interest rate on fixed deposit programs remains constant.
Taxation: Depending on the head of income the individual falls under, FD attracts a high-income tax rate of up to 30%. The accrued interest is used to calculate the tax as well. Investors cannot deduct any taxes from fixed deposits.
Post Office Time Deposit
One of the best and safest short-term investment strategies that provides investors with guaranteed returns is post-office time deposits, commonly referred to as post-office fixed deposits. The program is provided by India Post and is particularly well-liked in India’s rural and outlying regions.
Duration: A post office time deposit account may be opened for one year, two years, three years, or five years.
Liquidity: Under the post office program, the interest charged on the deposited sum is calculated annually. The post office program prohibits any early withdrawal before the end of the six months.
Returns: The following Post Office FD return rate is available for time deposit accounts.
| Tenure of the Account | Applicable Interest Rate |
| 1 year account | 5.5% |
| 2 year account | 5.5% |
| 3 years account | 5.5% |
| 5 years account | 6.7% |
Taxation: The interest on the amount deposited is added to the depositor’s income and taxed at the appropriate income tax rate for that individual’s tax slab.
Large Cap Mutual Funds
Large-cap mutual funds are short-term investment plans that invest judiciously in the stocks of major corporations to see significant growth in a shorter amount of time. Within one to three years of the investment period, these fantastic little investment programs might provide you with prompt and wise returns.
Tenure: A person may invest in a large-cap mutual fund for a period of three to five years.
Liquidity: The large-cap mutual fund scheme provides investors with significant liquidity in addition to substantial profits on their investments.
Returns: Large-cap mutual funds are a safe short-term investment option with low risk and a high return of 8%–13%.
Taxation: Debt funds are subject to capital gains tax. The capital gains made on a fund that is held for a minimum of three years are subject to short-term capital gains tax (STCG). On capital gains made on a fund that has been held for a while greater than three years, long-term capital gain tax is applied.
Silver or Gold
Gold and silver are beneficial for both long-term and short-term investments, much like the ever-growing trees of an investment forest. With the daily increase in the price of gold and silver, these investment schemes are guaranteed to yield enormous returns. So, you must invest in gold or silver if you want safe and risk-free short-term investment plans and beyond. Keep in mind that these metals’ luster won’t disappear.
Treasury Securities
Treasury securities or Treasury bills are another excellent short-term investment plan that provides great liquidity, safety, and a gratifying return. Their maturation times range between 91 and 365 days.
Stock Market/derivatives
Those with strong market knowledge and a high tolerance for risk can consider investing in shares, commodities, and derivatives. If an investor requires a quick return on investment, he may choose to make a short-term investment.
Investing in corporate or company deposits or NCDs
The last minor investment plan on our list is a corporate deposit, often known as an NCD. You can choose a secured NCD (non-convertible debt) to secure your capital through this scheme. Also, it provides enticing interest rates that range from 9% to 12%.
How Short Term Investment Works?
The balance sheets of businesses with high cash flows include accounts for short-term investments. As they invest excess funds in bonds, equities, or other investments to earn a greater income. Short-term investment plans provide capital protection while generating strong returns on investment.
Requirements for Short-Term Investments
Any investment that satisfies these two fundamental criteria is said to be a short-term investment. First, it offers liquidity, and second, the investment must be made for 12 months. A bond with a set maturity date falls under the category of a short-term investment strategy. Marketable equity assets may be easily traded as a liquid fund, and are regarded as short-term investments. The chosen maturity period for short-term investment plans is less than a year.
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