Top 6 Low-Risk Short Term Investment Options

1. Bank Fixed Deposits

Bank Fixed Deposits of FDs are amongst the most preferred and safe short-term investment options available. There can be various investment tenures for bank fixed deposits ranging from seven days to a year or even up to ten years. The duration of deposits varies across banks. These deposits can be renewed upon maturity and the maturity amount can be reinvested. An investor can easily create a fixed deposit online using net banking facility of their bank account. While some banks do not allow premature withdrawals from the deposits, FD can be considered as a liquid investment.

One may opt for any duration of a deposit as per the need. The rate od interest also varies across banks and schemes. The rate usually depends on the repo rate provided by the Reserve Bank of India (RBI). Senior citizens get an additional benefit on the interest rate. If the interest earned exceeds ten thousand rupees for any financial year, banks deduct tax at source (TDS) on the interest. The interest is added to the income of the investor and taxed as per the applicable income tax slabs.

2. Company Fixed Deposits:

These are unsecured deposits unlike the bank FDs and thus carry a higher risk. If there is any default, the last option for the depositors are the assets belonging to the company. Company deposits, known as corporate fixed deposits are usually issued by manufacturing companies and non-banking financial companies (NBFC) but only manufacturing companies issue deposits for short terms and those of NBFCs have tenures of more than a year. Premature withdrawals are allowed usually but it is at the discretion of the company. Companies also impose penalties in case of premature withdrawals.

The rate of interest on company deposits is usually few pre cents higher than that of bank FDs, but the security in this case is lower and the risk of loosing the capital is high. The interest amount earned is added to the computation of the income of the investor and taxed as per the applicable income tax slabs. Tax is deducted at source by the company if the interest earned in an year exceeds 5000 INR.

3. Recurring Deposits

Unlike all other short-term deposits where the principal is invested once as a lumpsum amount, recurring deposits provide the convenience of monthly regular savings. On maturity, the investor will receive the maturity amount as lumpsum. You can create a recurring deposit online using the net banking facility of your bank. Recurring Deposits can be opened for a minimum tenure of 6 months and then can be extended by multiples of 3 up to a maximum limit of ten years. Usually, recurring deposits have a lock-in period of minimum one month. Premature withdrawals are allowed but the interest paid will be calculated as per the applicable rates for the period of deposit.

The rate of interest varies across bank and schemes. The prevailing rate of interest for the entire tenure of recurring deposit is usually the one which is applicable at the time of starting the scheme. The interest earned is added to the income tax computation and taxed as per the income tax slabs applicable.

4. Post Office Time Deposits

The Post Office Time Deposits are secure deposits with a minimum investment tenure of one year, and this is the probable reason they are less preferred. The payment of interest in these deposits are annual and premature deposits are usually not allowed before a tenure of six months. However, the rate of interest earned in case of a premature withdrawal is lower than the applicable rate of interest.

The returns in case of these deposits are fixed and comes with a sovereign guarantee. The interest is paid annually but it is calculated on a quarterly basis. The rates are revised by the government after every quarter. The revised rates are however applicable only to the fresh deposits which are booked in that quarter. The interest rate earned is added to the income of the investor and taxed as per the applicable income tax slab.

5. Sweep in FDs

For short term investments, people usually park their surplus funds in a savings bank account. Sweep in Deposits are an alternative to this. It can be booked by visiting your bank or through net banking. Different banks have different names for Sweep in FDs, but the basics remain the same. Premature withdrawals are allowed but there is a penalty ranging from 0-.5 to 1 per cent on the amount of interest payable.

The rate of interest is usually like that of the simple fixed deposits. The interest earned is taxable as per the applicable income tax slabs. In case of interest amount exceeding 10000 for an year, banks deduct tax at source (TDS).

6. Quartile M

This option comes with the highest reward, which means that the risk incurred, and the returns are the highest in this case. The reason being the extremely volatile nature of the financial markets. Quartile M is a product from CapitalVia investment advisor, which offers weekly holding to make the most out of the short-term swings.

The liquidity depends on the stocks in which the investment is made. The income earned is taxable under the income tax act and incurs securities transaction tax (STT).

Short term investments are suitable for those having investment goals in the near future or for those who do not want to block capital for longer terms. One should choose an appropriate investment option depending on the investment goal, horizon and capital.