Friday, August 19, 2022

What are the best short-term investment options?

Several short-term investments are designed to provide significant returns over a reasonably short period. Specifically, these plans are designed to meet the expenses expected to occur shortly, and you can start investing in short term investment options with a minimum fixed deposit amount.

It is common for investors who are more inclined towards short-term investing options not to be interested in waiting for years to see their money multiply many times over rather than waiting for long periods. As a result, they are more interested in quick and effective results with minimum fixed deposit amount.

One can expect optimal results from short-term investment plans to meet one's financial goals and minimum fixed deposit amount. Still, it will not produce massive results as long-term investment options. 

Short-term investment plans have a lower risk profile because of the minimum fixed deposit amount than long-term, which is why many seasoned investors are attracted to them due to their lower risk.

Listed below are a few options for the best short-term investments

Savings accounts

Having a savings account is one of the easiest and safest methods by which you can easily access your money. There is mainly a concern here with liquidity, not so much with earning. A standard savings account return does not exceed 4% to 7%.

Liquid Funds

The purpose of these mutual funds is to invest in short-term government certificates, and securities of deposit with a minimum fixed deposit amount to increase the return on investment. 

It is safe to enter and exit these investments anytime as they are secure. Investing in liquid funds can yield an expected post-tax return of between 4% and 7%. 

There are a variety of liquid funds that investors can use to park money for as little as one day, as much as 90 days, or even beyond.

National Savings Certificate

Investing in a five-year postal NSC is also an option if you are confident that the goal will be achieved precisely five years from now. Under Section 80C of the Income Tax Act, you can claim a tax deduction, but the interest will also be taxed.

Arbitrage funds

The term arbitrage fund is also known as equity mutual funds, and if a fund is held for more than a year, it is more tax efficient. They are estimated to give approximately 8% of interest after paying the tax.

Fixed maturity plans (FMPs)

This type of investment has a lock-in period of a minimum of 3 years and works like a fixed deposit at your bank. Although they are more tax-efficient, you can expect better returns when investing in them than a fixed deposit.

Short term funds

A short-term fund invests in securities that are expected to mature within 1 to 3 years. As the maturity of securities in these funds is higher than those in ultra-short-term and liquid funds, they are a bit riskier. 

There is no difference in taxation between debt funds and other types. It is essential to remember that banks offer deposits with a range of timeframes, starting with a minimum of 7 days.

Recurring deposits

It is a type of secured investment that can be used by people minimum fixed deposit amount who are not interested in investing in a lump sum but instead would like to invest monthly. RD can help in making a better retirement investment strategy. Regarding RDs, you can either use postal RDs or bank RDs; typically, banks offer RDs for minimum tenures of 6 months to a maximum tenure of 10 years.

Debt Mutual Funds

Most of the money in these mutual funds is invested in debt instruments such as government bonds, commercial papers, treasury bills, corporate bonds, and similar investments to other money market products. 

Those who are risk averse and are looking for better returns in the short term with a minimum fixed deposit amount can benefit significantly from this type of short-term investment.

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