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THE
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2 mins Read | 1 Year Ago

Top Short Term Investment Options

how-fixed-deposits-help-boost-indian-middle-class-economy
 

What is a short-term investment?

Short-term investment involves allocating funds to financial instruments with a relatively brief maturity period, typically ranging from a few days to a few months. It is a financial strategy aimed at generating returns while preserving the capital. Common options include Fixed Deposits (FDs), Recurring Deposits (RDs) and Short-term Savings Accounts.

These short-term investment plans cater to individuals and businesses seeking liquidity, safety and flexibility for their funds. These plans provide opportunities to earn interest on surplus cash while allowing easy access to funds when needed, making them a practical choice for managing short-term financial goals and requirements. 

Investing strategically is one way to build wealth and reach your financial goals. In India, there are several investment options available in the market.

Looking for an appropriate investment plan can be quite a task and deciding which ones are the best fit for you can be confusing. If you are unsure of what to look for, begin by asking yourself how much time you want to give your investment, before expecting it to give you returns. If a long waiting period does not work for you, Short-Term Investment plans may be the right option for you.

Best Short Term Investment Options in India:

Here are some well-known Short-Term Investments in India:

1. Fixed Deposits

Fixed Deposits (FDs) are one of the most popular Short-Term Investment options in India. They offer guaranteed returns on investment at a fixed interest rate where the lock-in period can range from 7 days to up to 10 years, depending on the financial institution of your choice. Just ensure that you are clear on all FD details before investing in one.

2. Savings Accounts

Savings Accounts are another popular low-risk Short-Term Investment option that offers high liquidity. While the interest rate on a Savings Account is lower than Fixed Deposits, they do provide 24x7 access to funds with no lock-in period.

3. Recurring Deposits

Recurring Deposits (RDs) are similar to FDs, but allow investors to make regular investments in small amounts. The lock-in period for Recurring Deposits is usually between 6 months to 10 years.

4. Money Market Funds

Money Market Funds are a kind of Mutual Funds that invest in short-term debt securities. These are high liquidity and low risk, with a return on investment that is invariably higher than Savings Accounts.

5. Treasury Bills

Treasury Bills are issued by the Reserve Bank of India (RBI) and are a low-risk Short-Term Investment option. They have a maturity period of 91 days, 182 days and 364 days. They also provide a higher return on investments than Savings Accounts.

Apart from the above, Commercial Papers, Certificates of Deposits (CDs) and Liquid Funds are other popular high-liquidity and low-risk options with a return on investment that is usually higher than Savings Accounts.

Every investor should know their finances, consider their financial goals and assess their needs before choosing a Short-Term Investment option. They should also do their research and compare different investment options to choose the one that suits their financial goals and appetite for risk. Additionally, investors should try to diversify their investment portfolio by investing in different Short-Term Investment options to minimise risk and maximise returns.

Benefits of Short-Term Investment Plans:

1. Quick Returns:

One of the biggest advantages of Short-Term Investment plans are the quick returns they provide. Unlike Long-Term Investments, which may take several years to mature, Short-Term Investments can reach maturity in under a year. This means you can quickly reinvest your money or use the returns to service other financial goals.

2. Low Risk:

Short-Term Investment plans are generally considered to be low risk, as the government or corporate guarantees often back them. Additionally, these investments are less affected by market fluctuations. This makes them a great option for those who want to minimise their risk exposure.

3. Flexibility:

Short-Term Investment plans are often quite flexible. You can choose the amount of money you want to invest, the number of times you would like to invest, the duration of the investment and the type of investment.

4. Easy Access:

Short-Term Investment plans are also very accessible and quite a few investment platforms allow you to invest in these plans online. You can easily manage your investments from wherever you are.

Drawbacks of Short-Term Investment Plans:

All investments carry potential downturns, even if they are as safe as Short-Term Investment plans.

1. Low Returns:

While Short-Term Investment plans offer quick returns, they understandably often have lower returns than Long-Term Investments. This is because the returns are usually fixed and there is less time for the investment to grow. You may not earn as much money as you would with a Long-Term Investment.

2. Limited Growth:

Short-Term Investment plans also have a limited scope for growth. Since the investment duration is short, there is less time for the investment to grow. Compound interest works better over a longer tenure and you may not be able to benefit fully from compounding interest in a shorter span of time.

3. Limited Diversification:

Short-Term Investment plans often have limited diversification avenues. This means that you may not be able to spread the overall risk of your investment as much as you would like to.

4. Penalty for early withdrawal:

While Short-Term Investments offer high liquidity, some investment options like FDs may invite a penalty for early withdrawal. This feature may discourage investors from withdrawing their funds before the maturity of their investment. However, please be sure of all Fixed Deposit details with the financial institution of your choice, to confirm these withdrawal charges and penalties.

Final Remark:

Short-Term Investment plans like FDs and RDs, offer various benefits like high liquidity, less risk, high returns, diversification and flexibility. However, they also have potential drawbacks. Short-Term Investment options more or less guarantee returns on investments with a fixed interest rate. They are a safe investment option and can even offer tax benefits (like FDs).

Overall, investors should carefully consider their financial goals and needs before choosing an investment plan, be it long or short. They should also look up various options available and compare different offers. If done responsibly, Short-Term Investment plans can be a great option for those who want to invest their money for a short period and get quick returns.

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