13 Best Short Term Investment Plans with High Returns in India 2024 (2024)

March 11, 2024

Short term investment is the type of investment plan where funds are allocated to financial instruments that feature relatively brief maturity periods. These range from a few months to a few years (5-10 years). The key objective of investing in short-term investments is capital preservation besides generating modest returns. Investing for a limited timeframe is crucial as it helps the investor gain quick access to their funds in case of contingency.

Liquid investments furtherlend flexibility to the investor to park surplus funds till any need arises or to build funds without committing the principal to any instrument for too long. Investors often opt for these instruments so that they can meet immediate or short term financial goals, create emergency funds, or save for a short-term expense.

Some of the most popular short term investment options are - treasury securities, fixed deposits, short-term bonds, money market funds, etc. You can choose a suitable short term investment based on your risk tolerance, your liquidity requirement, and your financial objectives. Try to have a mix of different short term investment plans in your portfolio to gain the most from these options.

13 Best Short Term Investment Options in India

• Savings accounts

  One of the easiest and safest way to access your money is by having a savings account. The main motive here is liquidity, not that much on earning though. Banks provide not more than 4% to 7% return from savings accounts.

• Liquid Funds

  These are kind of mutual funds that invest in short term government certificates and securities of deposits. You can enter and exit at any given time as these investments are secure. Try restricting throwing in your emergency funds in these, as the redemption takes around 2 days. One can expect around 4%-7% post tax return on liquid fund investment.

  Investors can consider liquid funds to park money for a period as little as one day to as much as 90 days or even higher. Liquid funds invest in money market investments like call money among others. It is rare for liquid funds to see a dip in their net asset values (NAV).

  Investors can opt for the dividend option or the growth option. Dividend is taxed at nearly 30%. Capital gains are added to income and taxed at marginalincome tax rate(rate of taxation). From a taxation point of view investors in the lower tax brackets are better off opting for the growth option while investors in the highest tax bracket can choose either option.

• Short term funds

  Short term funds invest in securities that mature in 1-3 years. These funds are a little risky as the maturity of securities are more than ultra-short term and liquid funds. Taxation is the same as any other debt funds.

  Banks offer deposits of varying time frames beginning with a minimum of 7 days. So an investor looking to park money for even a week can choose a fixed deposit with a matching tenure.

  The interest on the deposit is added to income and taxed at the marginal rate of taxation.

  While liquid funds are suitable for investment tenures of a few days, short-term mutual funds are ideal for tenures running into a few months. Like liquid funds, short-term debt funds are managed conservatively with the explicit aim of safeguarding capital and posting modest capital appreciation.

  From a tax perspective short-term mutual funds are at par with liquid funds.

• Recurring deposits (RDs)

  This a type of secured investment and is suitable to those who don't want to invest in a lump sum and rather invest on a monthly basis. You can either use Postal RD or Bank RD, generally bank offers RD for a minimum tenure of 6 months to a maximum of 10 years. Also, the interest received on RD is taxable.

• National Savings Certificate (NSC)

  One can also invest in 5 years Postal NSC, if only you're sure that the goal is at exactly 5 years from today. You can claim tax deduction under deductions under 80C of Income Tax Act, but the interest will be taxable.

• Equity Mutual Funds:

  Also known as equity mutual funds, arbitrage funds are more tax efficient if held for more than a year. They give approximately 8% of interest post tax.

• Fixed maturity plans (FMPs)

  They have a lock-in period of minimum 3 years and act exactly like your bank FDs. They are more tax efficient though and you can expect better returns than FDs.

  So these were the options and they're laid out in front of you, choose anyone according to their tax benefits and interest earned so that you don't make any mistake while investing.

• Post-office time deposits:

  Post-office fixed deposits, also known as post-office time deposits, are one of the safest and most profitable short-term investment plans, providing guaranteed returns to investors. India Post provides this scheme, which is especially popular in rural and remote parts of India.

• Tenure – Post Office Time Deposit (POTD) Scheme is available for terms of 1, 2, 3 and 5 years.
• Liquidity – Interest is paid on an annual basis and no early withdrawal is allowed before 6 months.
• Returns – The rate of return offered by the Post Office Time Deposit Account is as follows:

It is important to remember that the interest gained on the deposited funds is included in the individual’s taxable income, and is taxed according to the applicable income tax rate.

• Investments in NCDs/ Corporate or Company Deposits:

A corporate fixed deposit often referred to as a company FD or company term deposit is a type of investment offered by corporations such as finance companies, housing finance companies, and other types of non-banking financial corporations. For many businesses, corporate fixed deposits are an effective way of obtaining capital from the public.

Corporate deposits have a higher rate of return than FDs or debt mutual funds, but they are also considered riskier. These deposits, offered by non-banking financial companies (NBFCs) and other financial institutions, require you to put your money in for a fixed period of time while receiving a fixed rate of interest. The length of the tenure may range from a few months to a few years.

• Fixed Deposits (FD):

Fixed Deposits are very popular as a short-term investment option. Here, the investor deposits a lump sum amount with a bank or financial institution. This is done for a fixed tenure, that ranges from a few months to a few years. The deposited amount earns a return at a predetermined interest rate and the principal and the interest earned is deposited to your account when the FD matures. This makes FD a highly capital safe investment option that offers assured returns.

• Treasury Securities:

Through treasury securities people invest in government-issued bonds and bills. These are considerably low-risk investments as they are backed by the government. Investors lend money to the government for a fixed period, and in return, they get periodic interest payments. Thus, treasury securities are a reliable source of income.

• Debt Mutual Funds:

Debt Mutual Funds invest money into fixed-income securities such as government bonds, corporate debt securities, and debentures. Also known as bond funds, they have a low cost structure and stable returns. They are also low on risk but get high return on investment making them great instruments to generate a regular income.

• Stocks & Derivatives Market:

Investing in the stock market and derivatives or in financial instruments of publicly traded companies. Although these are always considered high-risk investments, the stock market offers ample opportunities to make high profits and exit in the short term. Similarly, derivatives, such as futures and options, also enable investors to use strategies to encash market movements. However, these require a good understanding of the market and the tricks for risk management.

How does Short Term Investment Plan Work?

Short-term investment plans provide an opportunity to invest in money market securities such as treasury bills, corporate bonds nearing maturity, and other financial instruments. The aim of such investments is to generate interest on excess funds while still keeping liquidity. The main benefits of these plans include – Higher returns than savings or current accounts, easy access to funds, and safeguarding of capital. These investments also help banks, businesses, and governments to maintain liquidity while allowing investors to gain interest on idle capital.

The following are some of the characteristics of short-term investments:

• They don’t have a set end date
• Investors can make partial or full withdrawals without penalty;
• They provide a modest but consistent return.
• Investment risk is very low

What are the benefits of short term investment plans?

There are many benefits to having a short term investment plan. These include:

• Distributing your tax liability over five years,
• paying small amounts for a few years,
• better peace of mind,
• financial protection for your family
• a maximum life cover of up to 20 times of your annual income.

Here are some top highlights of the best short term investments:

• Safety and Preservation:

  A good investment will feature a low-risk profile to help preserve capital.

• Ease of management:

  Select instruments that you can monitor easily and manage. Avoid the ones that require constant supervision.

• Tax Efficiency Investments:

  Short-term investment taxation must always be efficient to ensure better returns post-tax adjustments.

• Alignment with Goals:

  Always pick short term investments that are in line with your future financial needs and goals. They must also fall within your risk tolerance boundaries.

• Liquidity:

  Choose instruments that allow easy access to funds. The penalties should be low.

• Diversification:

  Make sure your short term investments are spread across different instruments to balance risk.

Related Terms to Short Term Investments Plan

• Cash Investment:

This type of bond has a short duration, usually less than three months, and provides a return in the form of interest payments. Compared to other investment choices, cash investment generally yields a small return.

• Cash Equivalents:

These are investment instruments that offer high liquidity and are of high credit quality. As an investment with a low-risk and low-return profile, these securities are suitable for short-term investments.

• Money Market:

Money market instruments are those which have a short-term maturity and are highly tradable. Money market funds are seen as a secure investment, yet the returns are generally modest when compared to other investment opportunities.

• Financial Assets:

These are financial resources, which generate returns from a legal entitlement or an agreement. Stocks, money, bonds, mutual funds, and savings accounts are some of the types of financial assets.

• Short Term Investment Fund (STIF):

A Short-Term Investment Fund (STIF) is like a pool of savings. It focuses on short-term investments like government bonds or treasury bills. It aims to keep your money safe, provide quick access to it, and generate modest returns. These funds are usually with low risk. STIFs are perfect for people looking for stability and flexibility in their investments.

When investing in short term investment plans your must keep the following things in mind -

1. Capital Safety:

It is important to always keep your capital safety as top priority when considering to select the best short term investments. Always go for instruments with low-risk profiles to protect your principal. Government securities, high-quality bonds, and certificates of deposit are examples of relatively safer options.

2. Liquidity:

Always check the liquidity of the investment instrument. Short-term plans should allow easy access to funds when you need them. Go for instruments that can be quickly converted to cash without delay or much penalty. In this regard money market funds and some bonds are high on liquidity.

3. Taxability:

A short term investment is always taxable as per your income tax slab rate. Different instruments have different tax liability implications, which must be considered before investing. For instance, certain fixed deposits may offer tax-saving benefits, while gains from other instruments may be subject to TDS.

What is the Tenure of Short Term Investment Plans?

Short term investments typically have a tenure of 5-10 years. As a result these investments are most suitable for fulfilling immediate life goals. Basically, investments that qualify as short-term are the ones that you can liquidate within 12 months to meet your urgent cash needs.

For example your daughter who is in class IX wants to study abroad for her Masters. So while you have the funds all catered for her higher education, the need is still more than five years away. So you can invest the money in a short term investment plan such as a five year FD or a corporate deposit of three years or a five year NSC etc.

This way while these can be liquidated anytime, your money remains invested and grows as you wait for the actual need to come up. Different short term investments have different tenures and some even come with a lock-in period. It is best to check the same before investing for flexibility and informed decision making.

Investing in short term investment requires a strategic approach, which must take into consideration individual financial goals and risk tolerance. There are an array of options available — high-yield savings accounts, market funds and short-term bonds. These are all great for flexibility and liquidity.

When you are looking for the best short-term investment consider factors such as the investment horizon and desired returns. Diversification and constant adaptation of short-term investment strategies will always be a good way of funds management.Frequently asked questions on Short Term Investment Options

FAQs on Short Term Investment

Q. Which is the best short term investment plan?

A.Investing in a mutual fund with a large cap investment profile can provide greater returns. These funds have a larger selection of stocks and bonds to choose from, allowing them to diversify their portfolios and reduce their risk. In addition, large cap funds often have access to more resources and expertise, which can lead to better investment decisions and higher returns.

Q. How short term investments work?

A. Short-term investments involve placing funds in assets with shorter maturity periods, typically under five years. Returns are generally lower but these offer quicker access to funds.

Q.What are the best short term investments?

A.The following are the best short-term investment schemes:

• Savings Account
• Fixed Deposits
• Recurring Deposits
• National Savings Certificate
• Liquid Mutual Funds
• Debt Mutual Funds

Q. What are some examples of short term investments?

A.Short term investments are financial instruments with a maturity period of five years or less. Returns from these investments can be easily converted into cash when they reach maturity. Examples of short term investments include:

• Savings Account
• Recurring Deposit
• Gold or Silver
• Debt instrument
• Stock Market/Derivatives
• Large cap mutual funds
• Treasury securities
• Money market funds

Q. What are the benefits of investing in short term investment?

A. Investing in short-term instruments offers several advantages such as liquidity, lower risk, quick returns and flexibility. All these aid strategic financial planning.

Q. Which short term investment plan can give the highest return?

A. The highest-return short-term investment varies. Options include high-yield savings accounts, money market funds, or short-term bonds. Assess risk tolerance and financial goals before choosing.

Q. How long is short term investment?

A.You can put your money in short-term or long-term investments. For example, stocks can be sold the same day. Other options include savings accounts, liquid mutual funds, and stocks that can be kept for an indefinite period of time.

Q. Are Prepaid expenses a short term investment?

A.Prepaid expenses are classified as a short-term investment because the prepaid amount is consumed or expires within the course of one year from the date of the balance sheet.

Q.Which mutual fund is the best for short term investment?

A.Mutual funds with large capitalisations are thebest investment plan which gives higher returns in the short term.

Q. Is a short term investment an asset?

Yes, any investment can be considered an asset. The distinguishing feature of short-term investments is that they are quickly and easily liquidated, making them more readily available for cash.

Related Article

• Why must you invest in Bank FDs for fixed income?
• Market-Linked or Fixed Instruments-A comparison
• Fixed Income Investment Schemes That Offer Guaranteed Returns
• Section 80 - Best Tax Saving Investment option and its Impact on Income Tax