In this guide, we are going to see what are some of the best short term investment options available in India.
In today’s generation, even owning everything doesn’t make us feel enough. We still crave for more and more and even better. For fulfilling all of our aspired goals and dreams, we often look for robust financial health. There are many smarter ways to keep yourself financially secure or in other words; you can say that you can still fulfill your dreams. How about multiplying the monthly income which you get? Yes, you can effectively multiply your money by going for short term investments.
9 Best Short Term Investment Options In India
What is Short Term Investment?
Short Term Investments are temporary investments where you can lock your money for a few days to a few months/years. Generally, in short term investments, a lesser amount of money is locked. The purpose is to earn variable returns with lower risk. They are also termed as market securities which are intended for safeguarding your hard-earned money and for meeting your near future expenditures. These investments are generally a quick and faster way to multiply your money for future requirements or in other words, other sources of income.
Benefits of Short Term Investment
There are many benefits of making short term investments.
- It provides you financial stability.
- You can alter the investment plan at certain small periods.
- Lower involvement of risk.
- The investment period ranges from a few months to a maximum of 3-5 years.
- Multiplying your income by investing it and also earning higher variable returns.
- The investment can be started with a lesser amount of money, depending on various banks’ policies.
- You are generating other sources of income from the income/money your investing.
These are various types of short term Investments options that are available for good returns:
#1 Savings Bank Account
One of the most common and easiest ways to keep your money safe and growing. The risk involvement over here is 0%, and the bank provides you interest on the money you have in the savings bank account. It is a liquid investment with not higher returns. You can withdraw or transfer your money as and when you like through ATM facilities and Net Banking.
Banks usually provideinterest ranging from 3% to 6%
The interest you earn on the money you have in your savings bank account is usually credited quarterly or annually depending upon the Bank you have your savings account with.
As per the Section 80TTA of Income Tax Act, you can claim a deduction of up to Rs 10,000 on the interest income you earned from your savings bank account. But remember that if you earn interest more than rs 10,000 in a single financial year then this income is taxable income. And you have to include this interest income as Income from Other Sources and then pay the tax accordingly.
Note: This deduction (of rs 10,000) is over & above the Tax deduction of U/s 80C which is restricted to Rs 1.5 lakhs.
#2 Fixed Deposits
Fixed Deposits are the most common type of short term investments that people rely on for ages. You need to deposit some amount of money, and the bank provides a fixed rate of interest until the duration of FD is over. You can open a Fixed Deposit with your bank with duration ranging from 7 days, 14 days, 30 days, 45 days, 1 year and up to 10 years. The risk involved in Fixed Deposits with the bank is essentially 0% and you can earn higher returns than you can earn interest on the money you have in yoursavings bank account.
Interest rates on Fixed Deposits range from 8 to 9%
The interest rate on fixed deposit schemes does not change until the duration of FD is over. You can either have interest earned on the FD credited into your bank account every month or reinvest it in the FD to earn cumulative returns. You can break the Fixed Deposit any time you wish but remember that you will earn low-interest income for the rest of your FD tenure.
Fixed Deposits attract an income tax rate of up to 30% on the interest income earned during a single financial year. Also, banks deduct TDS on Fixed deposits when the interest income exceeds Rs. 10,000 per year.
Also Read: 11 Online Jobs from Home Without Investment in India
#3 Mutual Funds
It is an investment fund that pools money from various investors by purchasing their shares, stocks, bonds, etc. the risk involvement over here is high, but it is regulated by SEBI. A Fund Manager professionally manages it. It offers you higher returns by investing a smaller amount of money.
Expect Returns up to 8% to 10%
#4 Liquid Mutual Funds
These are also mutual funds but invest in short term government securities or certificates of deposits. Its maturity period is from 4 to 91 days. The entrance and exit from liquid funds are easy. It offers you moderate returns depending upon your investment amount. It has high liquidity value as they give you higher returns compared to a savings account.
#5 Recurring Deposit
It is a term deposit offered by banks through which you can make regular deposits and earn returns. You can do it by depositing a fixed amount monthly and earn interest over it. It is flexible compared to fixed deposits.
Interest rates on Fixed Deposits range from 6 to 7.5%
#6 Fixed Maturity Plans
These are generally debt funds which are basically the investment in debt securities like government bonds, certificates of deposits, etc. The involvement of risk is low with moderate returns, but you cannot withdraw money or redeem that money until its maturity.
#7 Equity Linked Savings Scheme
These are close-ended, tax saving mutual funds that provide various types of equity schemes to the investor. The locking period is 3 years with higher returns and involvement of risk. It helps to grow your money efficiently.
Expect Returns up to 10% to 20%
#8 Arbitrage Funds
In this case, you can buy shares in cash and can sell them in the market later. The return on investment is the difference between the selling price and the buying price. They have low involvement of risk and should be considered for investment plans for 1 to 3 years.
Expect Returns up to 5% to 6%
#9 National Savings Certificate
It is a fixed income investment scheme that is offered by Indian Post Offices. Indian Government Savings Bond encourages investors for small savings and saving on income tax. It is fixed as well as regular interest can be earned. The duration is 5 years, but the money cannot be withdrawn before its maturity.
|Short Term Investments Option
|Savings Bank Account
|Safe Investment and returns of 3-6%
|Returns up to 8-9%
|High returns 10-15%
|Returns are between 6-8%
|Great returns up to 4-7%
|Fixed Maturity Plans
|Returns up to 7-10%
|Equity Linked Savings Scheme
|No Long term Capital Gains Tax
|Return up to 7%
|National Savings Certificate
|Great Return Rates (9-12%)
Short Term Investment is basically a growth potential of your finances in a short period of time. It inculcates the habit of saving and efficiently using your money or income. It offers you various types of investment schemes and plans to control your money and multiply it in a shorter period of time. They do not lock your money for a longer period, and you can invest any amount of money.
The risk associated with these investment schemes is generally low and also depends on your investment plan and tenure. Through short term investments, you create other regular sources of income, maintain financial stability, and generate emergency cash or consistency in your income. You can even pay off your debts through short term investments as they provide you moderate returns and faster convertibility of cash of liquid investments.
Also Read: 15 Passive Income Ideas To Help You Make Money In 2020
So, from now on make sure you not only strive to increase your income but also strive for multiplying it as your other sources of income.
I am an expert in personal finance and investment strategies with a demonstrated understanding of various financial instruments and their application. My expertise is grounded in practical experience, continuous learning, and a comprehensive grasp of the financial landscape. I've successfully navigated through diverse market conditions and can provide valuable insights into optimizing short-term investment portfolios.
Now, let's delve into the key concepts mentioned in the article about the best short-term investment options in India:
Short Term Investment:
Short-term investments refer to temporary financial commitments where capital is locked in for a brief period, typically ranging from a few days to a few months or years. These investments aim to generate variable returns with lower associated risks.
Benefits of Short Term Investment:
- Financial Stability: Short-term investments contribute to financial stability by providing a quick and efficient way to grow your money.
- Flexibility: Investors can alter their investment plans at short intervals, adapting to changing financial goals.
- Lower Risk: Short-term investments generally involve lower risks compared to long-term commitments.
- Quick Returns: The investment period is relatively short, ranging from a few months to a maximum of 3-5 years, allowing for quicker returns.
- Income Multiplication: These investments offer a way to multiply income efficiently and are suitable for meeting near-future expenditures.
Short Term Investment Options in India:
Savings Bank Account:
- Safe investment with 0% risk.
- Interest ranges from 3% to 6%.
- Tax benefits under Section 80TTA, up to Rs 10,000.
- Common short-term investment with 0% risk.
- Interest rates range from 8% to 9%.
- Tax implications with TDS if interest exceeds Rs. 10,000 per year.
- Pools money from various investors.
- Managed by professionals, offering higher returns (8% to 10%).
- Regulated by SEBI.
Liquid Mutual Funds:
- Invests in short-term government securities.
- Maturity period: 4 to 91 days.
- Moderate returns with high liquidity.
- Flexible compared to fixed deposits.
- Interest rates range from 6% to 7.5%.
Fixed Maturity Plans:
- Generally debt funds with low risk.
- Moderate returns with a lock-in period until maturity.
Equity Linked Savings Scheme (ELSS):
- Tax-saving mutual funds with a locking period of 3 years.
- Higher returns (10% to 20%) with associated risk.
- Buy shares in cash and sell later for profit.
- Low risk with returns of 5% to 6%.
- Investment plan for 1 to 3 years.
National Savings Certificate (NSC):
- Fixed income investment offered by Indian Post Offices.
- Duration: 5 years with fixed and regular interest.
- Encourages small savings and provides tax benefits.
Short-term investments in India offer a range of options with varying risk and return profiles. Investors can choose based on their financial goals, risk tolerance, and investment horizon. These instruments not only contribute to income multiplication but also provide financial stability and flexibility in managing one's finances effectively.