Best Short Term Investment Options with High Returns in 2024 (2024)

November 14, 2023

When it comes to choosing suitable short term investment options you should consider the liquidity offered, time period and risk coverage of the investment plan. Fixed depositsalong with the below other mentioned investment options can be really suitable for your shot term financial goals.

Any investment option which is less than 5 years is considered as a short term investment. Short term goals are set to achieve unavoidable things that are going to occur in the near future. For e.g. your kid is currently 16 years of age and after 2 years he/she will need cash for graduation. Buying your kid a motorbike when he graduates or a luxury car for your family 3 years down the line, these are all short term goals that require short term investments. Few of them you can postpone and few of them you can't. To achieve definite goals in the near future, you must not take any risk and be specific about your decisions.

Investors with short-term money have two primary objectives:

• Safety of capital
• Return on capital

The typical investment tenure for best short term investment plans is less than 12 months.

Short Term Investment options for such investors:

• 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 Section 80C of Income Tax Act, but the interest will be taxable.

• Arbitrage 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.

• Corporate 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.

How do short term investments 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.

Any investment is classified as short-term if it meets two conditions. Firstly, it provides investors with liquidity. Secondly, it must be held for a time period of 12 months or less. Bonds and marketable equity securities are also considered short-term investments as they are easy to trade as liquid funds. Furthermore, these investments have a predetermined expiry date of less than a year.It is rare for liquid funds to see a dip in their net asset values(NAV).

What are the terms related to Short Term Investments?

• 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):

This conservative investment fund is a low-risk, high-yield choice for those seeking to quickly meet short-term financial goals. It is classified as a liquid investment fund, making it a secure option for investors.

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. What should you invest in for the short term?

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. 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 best for the short term?

A.Mutual funds with large capitalisations are the best investment option 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.

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