Top Short Term Investment Options in India

A short term investment can be defined as the investment plan where the time horizon is between few months to five years and the primary objective of the investment is to preserve capital and earn decent returns without risking too much. If you are investing money on a short term basis, then most probably you would want the money to be used for some near future goal such as a foreign trip or a new car or down payment for home loan or child’s education or marriage.

All these goals are something which you might be planning a few months or a few years in advance and hence, want to start saving money for these as soon as possible. However, the risk appetite for these goals is definitely not high and hence, investing in high risk instruments is probably not on your mind.

In such cases, there are a lot of options you can choose from to invest your money for a short period of time and earn decent returns.

Top Short Term Investment Options

1. Bank Fixed Deposit

2. Company Fixed Deposit

3. Recurring Deposits in Banks

4. Investing in Liquid Funds or Money Market

5. Post Office Time Deposits and National Savings Certificate

6. Stock Market Investments

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1. Bank Fixed Deposit

This is the safest option for short term investments in India, if you wish to earn interests in the range of 7-9 percent. Bank FDs come with tenure of as low as 7 days to as high as 10 years. These short term instruments can also be liquidated at any time after an initial lock in period and can also be extended for reinvestments on maturity. However, FDs do not offer any tax benefit to investors as these savings instruments are taxable at 30%.

The investments in bank FDs are quite safe since they returns do not vary according to markets and instead they depend on the repo rate decided by the Reserve Bank of India.

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2. Company Fixed Deposit

This is similar to bank fixed deposits where you can park your money for a period of one year to up to ten years. The interest you receive in company FD is often more than the expected interest in a bank FD. However, there is a default risk associated with Company FDs, which means that it is an unsecured for of investment, and in case a company defaults, the FD holders will be the last in queue to get their money back. There are many manufacturing companies and Non Banking Financial Companies or NBFCs which offer these company FDs at attractive interest rates to short term investors. The interest and the invested amount are taxed as per the individual investor’s tax slab.

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3. Recurring Deposits in Banks

These are another very famous short term investment instruments in which a fixed amount is deducted from the investors’ account every month and is deposited in the RD account on which interest is generated. This interest is often higher than the interest earned in regular savings account and also offers liquidity. The shortest time duration for which you can open an RD is 6 months, followed by 9 months, 12 months etc. upto 10 years. In a recurring deposit as well there are no tax benefits, but most RDs allow liquidation of the deposit after a fixed tenure.

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4. Investing in Liquid Funds or Money Market

Liquid funds are debt mutual funds which invest in debt schemes for a very short period – upto 91 days. These are often preferred by investors who do not wish to lock in their money in long term funds as the liquid funds do not have a lock in period. However, for liquid funds which are of a longer duration than 91 days, there is a market risk associated which means that the returns can be low.

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5. Post Office Time Deposits and National Savings Certificate

Just like bank FDs, post office also offers fixed deposits with it where investors can park their money for a period of 1 to 5 years and can generate a decent return. Similarly National Savings Certificate issued by the post office can also be purchased. The term of an NSC is 5 years. If closed prematurely, it attracts penalty as deduction from invested amount. However, if the short term goal is at least 5 years away, then this can be a rewarding option.

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6. Stock Market Investments

If you have a high risk taking appetite, then investing in some good quality stocks can also yield profitable returns. For a goal which is around one year away, CapitalVia Global Research Limited’s research report – Market neuron can be beneficial for short term investors as it suggests stocks on the basis of an idea with an investment capital of as low as Rs. 50,000. The investments do not have ay lock in period. However, they are subject to market risks.

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Conclusion:

Before choosing your investments for short term, it is important to assess and evaluate your risk capacity, time horizon for which investment is being made and the tax benefits desired. Each type of short term investment instruments has its own features, risk, return and liquidity requirements which should be fully evaluated before putting in the money in that instrument.

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