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Friday, September 30, 2022

Best Short-Term Investment Options Available In India

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Best Low Risk Available Investment Option In India

Short-term investment plans are highly liquid investment options wherein the investors can invest for long/short duration usually ranging from 3 to 12 months or a couple of years. These investments are suitable to serve the basic requirements of a short-term investor such as safety of capital and returns, and quick wealth creation. Some of the most popular short-term investments are debt funds, high-returns savings accounts, term deposits, money market accounts, treasury bills and government bonds. They are low-risk investments that either give guaranteed or predictable returns. Experts consider them as useful for low-risk investors and short-term goals of up to 3 years.
Any investor with a short-term goal should pick one of the short-term investments rather than going for equity or real estate. This is mainly because a short-term investment is more stable and is less volatile than equity, real estate or gold. In the short term, equity is very volatile as the markets are cyclical in nature.
Confused about where to invest your excess funds for a short period of time? Looking for investments with high liquidity and low risk? Well, This article gives a glimpse of a few of the best short term investment options to invest your money for steady, risk-free growth i.e. available in the Indian market.

The best short-term investment options available in India are as follows:-

1. Savings account

As one of the preferred choices of most people, savings accounts offer maximum liquidity. It is a deposit account held at a bank or other financial institution where one can keep extra cash, earn interest on the investment and access it whenever required. It is known for providing maximum liquidity as the subscribers can withdraw the invested amount as and when they want. The interest rates in Saving Accounts range from 3.5% to 7% varying from one bank to another. There are no limits on the deposit amount.

2. Fixed deposits

Fixed deposits are easily among the best options for short-term investments. They offer a high rate of return, independence from market fluctuations and interest rate volatility, and high flexibility in terms of tenor period. Fixed Deposit interest rates vary from 3.5% to 9.20% per annul according to the bank, age of the investor and the tenure that one invests for. The interest earned is added to the income of the subscriber and taxed according to the income slab. You can also withdraw your deposit during times of emergency by paying a penalty. The interest on FD is taxable after your earnings cross Rs. 10,000. The safety of capital and surety of returns has increased the popularity of fixed deposits as investments. Enjoy additional features like sweep in deposit facility, tax saver FD, loan against fixed deposit and fixed deposit calculator that help you calculate returns and plan your investments accordingly. You can opt for a hassle-free online fixed deposit application with some of the leading financiers. Fixed deposits come with tenures ranging from 7 days to 10 years. Fixed Deposit provides a higher rate of interest than a regular savings account.

3. Recurring deposits

Recurring deposits (RDs) are small saving options that allow regular investments on a monthly basis. The monthly installments are fixed for the entire duration of the deposit tenure. Banks and post offices offer them. These deposits can be opted for if you do not want to invest a lump sum amount in one go. Recurring deposits from financial institutions have a minimum tenor of six months and a maximum tenor of 10 years. Recurring Deposits gives you three significant benefits- Flexibility, Guaranteed Returns and Liquidity. Interest rates on recurring deposit keep on changing from time to time. Investors can earn 5% to 7% interest rates on RD accounts varying from one bank to another. As a Term-deposit, RDs are considered a low-risk yet profitable investment option by the investors.

4. National Savings Certificate (NSC)

NSC is a tax-saving short-term investment scheme which can be purchased from any post office. This scheme gives fixed returns. This investment option has a tenor of 5 years. An advantage of NSCs is that you can claim tax exemptions under section 80C of the Income Tax Act. But, again, the interest earned is taxable. Being a government-backed scheme, it also carries low risk which is why it is usually preferred by risk-averse investors or the ones willing to diversify their investments through fixed return instruments.

5. Liquid funds

Liquid funds are a type of mutual fund that invest your money in short-term government certificates or securities. These funds mature in 91 days and are highly liquid. They are best short term investment plans because of its low-risk investments and its predictable returns. An investor can withdraw money from these funds at any time. Liquid funds offer you a higher interest rate of up to 7%. Moreover, since the money in these funds is invested in money market instruments, you can expect a comparatively higher amount of security for your investment. Liquid funds have no lock-in period and are redeemable anytime. They also don’t have any entry or exit loads and give higher returns than a savings bank account and bank FDs. Liquid funds suit investors who have idle cash or excess funds for a short period. Gains from funds are taxable based on the investment duration. Try restricting throwing in your emergency funds in these, as the redemption takes around 2 days.

6. Large Cap Mutual Funds

According to market capitalization, Large Cap companies are top 100 companies with a market cap more than or equal to 20,000 crores. The Mutual Funds investing in equity & equity-related securities of Large Cap companies are called Large Cap Funds. These funds are considered excellent for quick investments and smart returns over a period of 3 to 5 years. Large-cap funds have the capacity of delivering 8% to 13% returns which is quite good as compared to the returns accrued by other short-term investment options. Moreover, since these companies function as establishments under a proficient business plan and sound financial strength, the chances of any hindrance in the revenue-generation or ending up insolvent are very low.

7. Treasury Securities

Treasury Bills are Government backed securities offering high liquidity and safety of capital with decent returns. Although the returns offered by treasury bills are lower than those accrued by debt funds, they are considered as a good option to park your assets in a safe haven. The maturity period of T-bills can go up to 1 year and the rule of thumb states that the shorter the maturity period, lower the return that you get.

8. Post-Office Time Deposits

Post-Office Time Deposits (POTD), as the name suggests, are FD schemes that the Post Office offers and are considered as best for short term investment option. The Finance Ministry determines the interest rates for these schemes every quarter. The interest rates are based on the yield of government securities and government sector yield. The POTD tenures are one year, two years, three years and five years. Post Office Time Deposit is quite similar to a Bank FD. Minors above the age of 10 years can also get their accounts opened and invest in this scheme. If you opt for a 5 year Time deposit, you will be able to avail the tax benefits under Section 80C of the IT Act, 1961. The interest rates in this scheme range from 5.50 – 6.70%.

9. Corporate Deposits

Corporate deposits are offered by Non-Banking Financial Companies (NBFC) that have maturity ranging from a few months to a few years. This short term investment plan FDs are usually rated by rating agencies and hence can be evaluated based on their creditworthiness. Corporate FDs offer better interest than bank FDs and also have premature withdrawal facilities in certain conditions. These FDs best suit investors with short term goals and low-risk tolerance levels. However, the risk also depends on the credit rating. Choose FDs with a higher credit rating, for example, AAA, for low default risk. Before investing in corporate FDs, it is better to check the credit rating, company’s background, and repayment history. By assessing these parameters, it is easy to determine the underlying risk, creditability, credit score, and stability. Interest earned on corporate deposits is taxable, just like fixed deposits at the income tax slab rate.

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