Top 7 Short-term Investment Plans in India

Short term investment refers to an investment scheme with a time horizon of three to five years. Since the market is highly volatile, many believe that such investments are highly risky. However, the phrase only implies if you are unfamiliar with the many investment possibilities available in the market. Selecting a short-term investment with quick returns may be challenging. To make things easier for you, we have compiled a list of the best investment options in India for the short term.
 

Best Short-term Investment Plans with High Returns in India

 

1. Mutual Funds

   In mutual funds, a large number of people pool their money to invest in a single scheme with a shared goal. The fund's portfolio comprises equity, treasury, bonds, and other money market instruments. The funds are managed by professional fund managers. This scheme is available as a SIP (systematic investment plan), in which you must invest a set amount at predetermined intervals or as a lump payment.
    

   Features and Benefits of Mutual Funds

   • Mutual fund schemes offer diversification. The money put into these schemes is spread across a mix of asset classes. As such, investment risk is greatly reduced.
   • Mutual funds offer liquidity benefits. It means you can quickly redeem your investment in the event of an emergency. The funds will be credited to your account within two to three days.
   • Such schemes are regulated by the Securities and Exchange Board of India (SEBI). 
   • Mutual funds are often regarded as tax-saving investments due to multiple tax benefits under various sections of the Income Tax Act.
    

2. Recurring Deposits (RD)

   Recurring deposits are usually a term deposit scheme offered by banking institutions. Under this scheme, you can deposit a fixed amount from your income every month to your RD account. In exchange, you will receive interest payments from the financial institution. The interest rate offered under this scheme is the same as that paid on fixed deposits. RDs are widely regarded as safe investments with high returns.
    

   Features and Benefits of Recurring Deposits

   • You have the option of investing for a period of six months to 10 years.
   • RDs can be opened in the names of minors, senior citizens, NRIs, NROs, and NREs, among others.
   • You are not allowed to withdraw any funds, either partially or completely, before the completion of the tenure.
   • In case you are opting for premature closure, you might have to pay a penalty for the same. 
    

3. Stock Market Investment

   The stock market is where investors can buy or sell the shares of public listed companies. Investing in stocks can be done in numerous ways. You can invest in the primary stock market by buying units in an initial public offering (IPO). You can also invest in the secondary market, where you buy shares that have already been owned by another investor for a specific period.
    

   Features and Benefits of Stock Market Investment

    
   • A DEMAT account is mandatory to invest in such schemes.
   • Stock market investments are known for delivering higher returns in the short term. But remember, the stock market is extremely volatile. If you are into trading rather than investing, you will need expert guidance.
   • The stock market is regulated by the Securities and Exchange Board of India (SEBI). 
   • Stock investments provide liquidity as well as the chance to earn dividends.
    

Also Read: A Millennial's Guide To Tax-Saving Investments
 

4. Saving Accounts

   Savings accounts are a type of demand deposit account that you can open at any banking institution. These accounts are noted for providing principal security as well as a nominal interest return of around 3% to 6%.
    

   Features and Benefits of Savings Accounts

   • Saving accounts offer 24×7 withdrawal flexibility. You can take money out of your account whenever you want.
   • Savings accounts are available to people of all ages, including children and the elderly.
   • This account can be used to make or receive payments for nearly any transaction.
   • Depending upon your saving account type, you might have to maintain a minimum average balance. If you fail to do so, you will be penalised.
    

5. Fixed Deposit

   A fixed deposit is a type of term deposit offered by financial institutions in which you can deposit a lump sum amount for a certain period and earn interest. This investment option pays a much higher rate than traditional savings accounts. It also provides you with the option of reinvesting. 
    

   Features and Benefits of Fixed Deposits

   • Unlike market-led investment schemes, fixed deposits provide assured returns and are devoid of volatility.
   • Interest rates are reliant upon your investment tenure. The return on investment for a longer tenure is substantially higher than for a shorter duration.
   • Since the returns are guaranteed at maturity, you can easily take a business loan against it. 
   • The returns are compounded monthly, quarterly, or annually depending on the financial institution.
    

National Savings Certificate (NSC)

NSC is a government savings bond that you may buy at the post office. The main objective of this investment scheme is to encourage small and middle-income people to save. The interest rate offered by NSC is 6.8% per year. Given its objective, the scheme is regarded as one of the best financial planning tools for women. 
 

Features and Benefits of National Savings Certificates

• You can claim a tax benefit of up to Rs 1.5 lakh under section 80C of the Income Tax Act. 

• Several financial institutions grant a loan against NSC.

• You can make investments for as little as Rs 1,000. You can only invest in multiples of 100.

• This investment plan has a five-year maturity period.

• Premature withdrawal is not permitted under NSC unless in the event of an investor's death.

 

Corporate Deposits

The concept of corporate deposits is similar to fixed deposits, with the exception that fixed deposits are offered by banks, whereas corporate deposits are offered by non-bank financial institutions. However, the interest rates offered under this scheme are slightly better than the fixed deposits. 
 

Considerations for picking best short term investment options

 

• Risk factor

  Short-term investments plans are usually considered riskier than long-term investments. Before investing, assess your risk tolerance and choose an investment plan that matches it. For example, if you are a risk-averse investor, you may prefer investing in a fixed deposit, which has lower risks but also lower returns compared to other investment options.
   

• Liquidity

  Since short-term investments have a shorter holding period, it is important to choose an investment that offers easy liquidity, so you can easily access your funds when needed. For example, if your portfolio has a significant weightage of stocks, make sure the companies whose shares you are holding have good trading volume.
   

• Returns

  Look for short term investment plans with higher returns while also keeping in mind the risks involved. Compare the returns offered by different investment plans before making a decision. For example, short-term debt funds offer higher returns than fixed deposits but also come with higher risks.
   

• Tax implications

  Consider the tax implications of the investment plan you choose. Short-term capital gains are taxed differently from long-term capital gains, so be aware of the tax rates that apply to your investment. For example, interest earned on fixed deposits is taxable, while gains from debt mutual funds are taxed as per your income tax slab.
   

• Fees and charges

  Be aware of any fees or charges associated with the investment plan, including entry and exit charges, management fees, and transaction charges. For example, some mutual funds charge a fee for early redemption.
   

• Investment horizon

  Consider the duration for which you want to invest your money. Short-term investments typically have a holding period of less than one year, so choose an investment plan that suits your investment horizon. For example, if you are looking to park your money for a few weeks or months, a liquid fund or a short-term debt fund may be a good option.
   

• Diversification

  It is always a good idea to diversify your investment portfolio to manage risk. Consider investing in different types of short-term investment plans, such as fixed deposits, liquid funds, or short-term debt funds. This will help you spread your risk and reduce the impact of any losses.
   

Also Read: 11 Financial Tips to Make 2022 Easier
 

To Conclude

Short-term investment plans have several advantages over long-term investments. It provides more liquidity, higher returns, and many other benefits. However, before you choose one, make sure you consider the risk aspect.
 
Disclaimer: This post was first published on 18th April 2021 and has been updated for the latest information, freshness and accuracy.