Short-term investment plans are one of the highly liquid investment options in which investors invest some money for a short period of time normally ranging from 3 to 12 months or more than that. These short term investment plans are beneficial for fulfilling the basic requirements of life such as safety of capital and returns, and quick wealth creation. When it comes to best and popular short-term investments that are high-return savings accounts, debt funds, term deposits, money market accounts, treasury bills, and government bonds.
Benefits of Short-Term Investments
There are so many benefits of short term investment as they provide good returns in a relatively shorter span of time that ranges from a few months to a year. Moreover, these options are great because they fulfill financial objectives in the upcoming future. In addition, these kinds of best short term investments offer high flexibility to the investors as they curb the need to wait for the investment maturity to convert it into cash.
Apart from this, short-term investment has very limited risks just because of shorter maturity periods. Thus, short-term investment options provide good returns with high liquidity and low.
Best Short-Term Investments with High Returns
|Rate Of Interest (%)
|Up to 10.50
|90 days to 3 years
|Large Cap Mutual Funds
|3.5 – 7
|5 – 8
|6 months to 10 years
|Bank Fixed Deposits
|91 days to 1 year
|3.50 – 8.05
|7 days to 10 years
|Post Office Time Deposits
|8 – 13
|3 to 5 years
|National Savings Certificate (NSC)
|5.50 – 6.70
|1 to 5 years
1. Debt Mutual Funds
Debt Funds are those type of mutual funds which basically invest in debt and money market securities. The best thing about debt mutual funds is these funds are one of the safest among all types of mutual funds. Therefore, they are ideal for risk-averse investors seeking good returns over short periods of time.
Have a look at three major categories of Debt funds based on tenure:
- Liquid Funds– it has a maturity period of up to 91 days.
- Low Duration Funds– duration between 6 to 12 months.
- Ultra Short Duration Funds– Duration between 3 to 6 months
2. Large Cap Mutual Funds
Large-cap mutual funds choose stocks from the largest 100 stocks listed in the Indian markets. Moreover, large stocks are very risky whereas smaller stocks may have a higher expectancy to grow. Thus, these kinds of funds are considered excellent for quick investments and also having smart returns over a period of 3 to 5 years.
Apart from this, large-cap funds have the capability of offering 8% to 13% returns which is quite good as compared to the returns offered by other short-term investment options.
3. Recurring Deposits
Recurring deposits allow you to pay monthly deposits, unlike fixed deposits in which one has to make predefined payment. If we talk about the benefits of recurring deposits, it offers you three major benefits i.e. flexibility, liquidity, and Guaranteed Returns. However, the companies constantly change the Interest rates on RD from time to time. So investors can earn around 5% to 7% interest rates on RD accounts depends upon bank to bank
- Tenure– Minimum for 6 months and a maximum of up to 10 years.
- Liquidity– It comes with a minimum lock-in period of one month. No interest is paid to the depositor.
- Returns– Currently, for the tenure of 12 months and more, the interest rate is 6.5% per annum. It will be applicable as on the date of the first deposition.
- Taxation– In these best short term investments, the TDS is deducted in case the interest earned is more than Rs.10, 000.
4. Bank Fixed Deposits
Fixed deposits are one of the common investment that most of the people does.
Its tenure ranging from 7 days to 10 years. These are the most basic financial instruments provided by every bank either private or public. On the other hand, recurring deposits and fixed deposits are the best options and suitable for investors who have limited funds and want to save their money in a safe investment option. In addition, a fixed deposit provides a higher rate of interest than a regular savings account.
If we talk about the interest rate of fixed Deposit that varies from 3.5% to 9.20% per annum according to the bank, age of the investor, and the tenure that one invests for.
5. Treasury Securities
Treasury Bills are legal securities that come under government and offer high liquidity and safety of funds with a great rate of returns. Although the returns offered by treasury bills are generally lower than debt funds because they are considered as one of the good options to invest your money in a safe pool. When it comes to the maturity period of T-bills, it can go up to 1 year. And the rule of thumb reveals that the shorter the maturity period, the lower the return that you get.
6. Post-Office Time Deposits
Post-Office Time Deposits (POTD) is the most preferred choice of short-term investment scheme started by India Post. This investment plan is very popular in rural and other remote areas of India. The postal savings system offers a tenure period of 1 year, 2 years, 3 years, and 5 years.
In addition, Post Office Time Deposit is almost similar to a fixed deposit. Children whose age is above 10 years can also get their accounts opened and invest in the POTD Investment scheme. Apart from this, if you choose 5 years of Time deposit, you will get tax benefits under Section 80C of the IT Act, 1961. In this investment scheme, the interest rates range from 5.50 – 6.70%.
7. National Savings Certificate (NSC)
NSC is a tax-saving and best short term investments which you can purchase from any post office in India. In addition, this scheme provides fixed returns. Being formulated by the government, it carries a low risk that’s why it is usually preferred by investors who can’t take risks in their investment or the ones willing to diversify their investments through fixed return instruments.
Interest rates for National Savings Certificate have changed according to the different time periods as per the decisions taken by the Finance Ministry. The applicable NSC interest rate for Q1 FY 2020-21 (April to June) is 6.8% for 5 years NSC. The best thing about this type of investment, If you invest in the 5 year National Savings Certificate, you can also get tax benefits under Section 80C of the IT Act. However, the interest income will be taxable.
8. Savings Accounts
As we all know savings account is one of the most popular and preferred choices of people for investment as it is also a short term investment. If you have any deposit account in a bank, You can keep extra cash, earn interest on the investment, and withdraw it whenever required. It is famous for providing maximum liquidity as the subscribers can withdraw their amount anytime the investor want
The average interest rate on saving accounts ranges from 3.5% to 7% varying from one bank to another bank. You can get a lot of benefits If you deposit a lot of money in a saving account. So There are no limits on the deposit amount. In addition, most of the banks provide zero balance saving Account which means that you do not need to maintain any minimum balance to keep your account active.
Things to be considered while investing
Check the important factors that you must consider while selecting the best short term investments option with high return, risk appetite, and liquidity requirement:
- Liquidity: The major benefit of short-term investments is high liquidity i.e. you can easily convert them into cash with minimal loss in the amount you have invested
- Risk: All of the short-term investments carry a relatively lower risk component as compared to their long-term counterparts due to the short maturity period.
- Tax Efficiency: Gains from short-term investments are taxable as per the Short-Term Capital Gains Tax (STCG). Therefore, the tax efficiency of the investment option is another factor that every investor must consider before choosing the right short-term investment option for himself/herself.
Best Short Term Investment Options – Highlights
- Short turnaround time
- Optimum returns for less investment
- Lesser investment amount
- High liquidity
- Low risk
Wrapping it up!
Now you don’t need to think any more like what, where, and how much you should invest. But if you really want to invest your money in the best short term investments in India, then have a look at the above-mentioned investment options that could be the best option for you to stop-think-invest.