Best Short Term Investment Option in India

By August 21, 2019
best investment option in india

Long-term investments help you achieve your life goals via substantial financial backing, while short-term investments are ideal to fulfill smaller objectives. Any investment with tenor ranging between 1 year and 3 years is a short-term investment.

Listed below are some of the best investment plans in India to focus on your short-term goals.

  • Savings account

While most people fail to perceive money in a savings account as an investment, it can still lead to substantial financial growth via the interest earned on the available amount. However, the rate of interest is very limited. The liquidity in a savings account makes it a good short-term investment choice for you if you desire quick accessibility to your money.

Moreover, facilities such as ATMs and internet banking have further increased the ease of access to the funds in a savings account.

  • Fixed deposit

Fixed deposits are an alternative to savings account for investments. Tenors range from a few months to up to 10 years. Interest rates average around 7.5%, depending on the financing company and the tenor of your choice. Due to almost zero risk, FDs are ideal for those looking to supplement their income without incurring any unplanned losses. Some financers such as Bajaj Finance offer Fixed Deposits with even higher interest rates plus other additional benefits as well.

If you are about to invest in an FD, you should know about TDS on fixed deposit interest earnings, if the interest adds up to over Rs. 10,000 in a year. You can invest your money in tax-saving fixed deposits if you want to avoid taxation on the interest you earn. However, such tax saving schemes have a minimum tenor of 5 years and may not be suitable for your short-term investment goals.

  • Liquid funds

Liquid funds refer to mutual fund investments that are very short-term in nature, ranging from 4 days to 91 days. In these instruments, the fund manager invests your money in a certificate of deposits and short-term government securities. The rate of return can vary but is usually between 4% and 10%.

The high liquidity of such mutual funds, make it a perfect short-term option for investment. However, as is the case with all mutual funds, liquid fund investments are riskier than fixed deposits, which is why they provide better returns when compared to FDs as well.

  • Equity Linked Saving Scheme or ELSS

With a minimum investment amount of just Rs. 500, ELSS offers a good place to start for investors. Furthermore, a lock-in period of just 3 years ensures maturity at just the right amount of time to meet your short-term goals. Long-term interests you earn on such investments are tax-free up to Rs. 1.5 Lakh per year, meaning you can keep the entire maturity amount for yourself.

Since this mutual fund variant invests in equities, there is always some risk associated with your investment. However, there is a potential to earn notably high returns as well.

  • Fixed Maturity Plans

In FMPs, you invest the money into debt securities, such as treasury bills, government bonds, a certificate of deposit, etc. In all cases, the maturity tenor of the FMP matches the tenor of the debt instrument where your money is invested. For instance, a fixed maturity plan of 2 years will invest in debt instruments that have a 2-year maturity period as well.

It is one of the best investment plans in India if you are looking for a balance between risk and reward. However, the major disadvantage of FMP investment is that you cannot withdraw the money before the tenor ends, leading to poor liquidity.

  • Arbitrage fund

Although not as common as the other investment instruments listed above, arbitrage funds follow a simple procedure. The fund manager buys stocks with your money and sells off those stocks later. The difference between the buying and selling price for the same stock is your return on investment.

Arbitrage funds share some similarities with equity mutual funds. However, the former is only suitable for short-term investments, not exceeding 3-year tenor.

Short-term investments can help you achieve many of your immediate goals. For instance, it is a practical method to save for your dream car or to plan a perfect family vacation abroad. Ensure you also have a decent long-term investment portfolio to maintain stable finances throughout your life.

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