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- 5 Best Short Term Investment Option with Returns Rate
- 1. Liquid Funds – Best for low risk Investors
- 2. Corporate Deposits – Best for High Returns
- 3. Bank Fixed Deposit – Best for Guaranteed Returns
- 4. Recurring Deposits – Best for High Liquidity
- 5. Post Office Time Deposits – Best for Low Income Group
- Why You Need the Best Short Term Investment Plan?
Confused about where to invest your excess funds for a short period of time? Looking for investments with high liquidity and low risk? Well, short term investment plans are the answer to these questions.
Short term investments are investments plans that have a tenure ranging from a few days to a few years. They are easily convertible to cash and also give predictable returns. This article gives a glimpse of a few of the best short term investment options available in the Indian market.
5 Best Short Term Investment Option with Returns Rate
| Investment Options | Best for | Rate of Return (in % p.a) |
| Liquid Funds | Low Risk | 4.50% to 7.50% p.a. |
| Corporate Deposits | High Returns | Up to 9% p.a. |
| Bank Fixed Deposit | Guaranteed Returns | 3.50% to 8.50% p.a. |
| Recurring Deposits | High Liquidity | 4.50% to 7.30% p.a. |
| Post-Office Time Deposits | Low-income Group | 6.90% to 7.50% p.a. |
1. Liquid Funds – Best for low risk Investors
Liquid Funds are open-ended debt mutual funds that invest in money market instruments like commercial papers, certificates of deposit, and treasury bills. These funds mature in 91 days and are highly liquid. They are best short term investment plans because of its low-risk investments and its predictable returns.
Liquid funds have no lock-in period and are redeemable anytime. They also don’t have any entry or exit loads and give higher returns than a savings bank account and bank FDs. Liquid funds suit investors who have idle cash or excess funds for a short period. Gains from funds are taxable based on the investment duration. If the investment in these funds is held for less than three years, the Short Term Capital Gains (STCG) are taxable at the income tax slab rate. However, if the investment is held for more than three years, the Long term Capital Gains (LTCG) are taxable at 20% after indexation.
From April 1st 2023, capital gains from debt mutual funds will be taxed as per the investor’s IT slab rate. Thus, irrespective of the investment holding period, the gains are added to the investor’s taxable income.
2. Corporate Deposits – Best for High Returns
Corporate deposits are offered by Non-Banking Financial Companies (NBFC) that have maturity ranging from a few months to a few years. This short term investment plan FDs are usually rated by rating agencies and hence can be evaluated based on their creditworthiness. Corporate FDs offer better interest than bank FDs and also have premature withdrawal facilities in certain conditions.
These FDs best suit investors with short term goals and low-risk tolerance levels. However, the risk also depends on the credit rating. Choose FDs with a higher credit rating, for example, AAA, for low default risk. Before investing in corporate FDs, it is better to check the credit rating, company’s background, and repayment history. By assessing these parameters, it is easy to determine the underlying risk, creditability, credit score, and stability. Interest earned on corporate deposits is taxable, just like fixed deposits at the income tax slab rate.
3. Bank Fixed Deposit – Best for Guaranteed Returns
Fixed Deposits (FD) are the best short term investment schemes with guaranteed returns since they are offered by banks and NBFCs. Fixed deposit investments require a lump sum amount. The investments come with a lock-in period that varies between 7 days to 10 years. FD investments earn a fixed return at the predetermined interest rate and get credited automatically to the account. The interest compounding can be monthly, quarterly, half-yearly or yearly, based on the scheme.
Furthermore, the interest payments are made either regularly or on maturity, as the case may be. The amount can be withdrawn or reinvested on maturity into the same FD or a different FD scheme. There are a variety of FD schemes for both Indian residents and NRIs. Investments in Tax-Saving FDs qualify for tax exemption under Section 80C of the Income Tax Act, 1961. However, returns from all FD investments are taxable as per the income tax slab rate.
4. Recurring Deposits – Best for High Liquidity
Recurring deposits (RDs) are small saving options that allow regular investments on a monthly basis. The monthly instalments are fixed for the entire duration of the deposit tenure. Banks and post offices offer them. The tenure of this short term investment scheme ranges between 6 months to 10 years. The interest is predetermined and varies from bank to bank. The interest is compounded on a quarterly basis. At the end of the tenure, a lump sum amount is paid (principal amount + interest).
Only investments in Post Office RDs qualify for tax exemption under Section 80C of the Income Tax Act, 1961. The maturity amount is taxable as per the investor’s income tax slab rate.
5. Post Office Time Deposits – Best for Low Income Group
Post-Office Time Deposits (POTD), as the name suggests, are FD schemes that the Post Office offers and are considered as best for short term investment option. The Finance Ministry determines the interest rates for these schemes every quarter. The interest rates are based on the yield of government securities and government sector yield. The POTD tenures are one year, two years, three years and five years. One can reinvest the interest into the scheme. However, this option isn’t available for one-year TDs. Additionally, one can redirect interest pay-outs to a 5-year recurring deposit.
POTD is transferable from one post office to the other. Investments up to INR 1,50,000 per year qualify for tax exemption under Section 80C of the Income Tax Act, 1961. Returns from this short term investment scheme are taxable as per the investor’s income tax slab rate.
Why You Need the Best Short Term Investment Plan?
Short term investments are those investments that have a tenure of 1 day up to 3 years. They are low-risk investments that either give guaranteed or predictable returns. Experts consider them as useful for low-risk investors and short-term goals of up to 3 years. Moreover, short term investments are highly liquid, making it easy to redeem investments.
Any investor with a short-term goal should pick one of the short-term investments rather than going for equity or real estate. This is mainly because a short-term investment is more stable and is less volatile than equity, real estate or gold. In the short term, equity is very volatile as the markets are cyclical in nature.
Long-term investment can be converted to a short term one as the goal is approaching as this helps in capital protection. Also, one can invest in short term investments like debt funds before systematically transferring them to long term investments like equity funds.
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As an expert in financial planning and investment, I can confidently assert my deep knowledge and understanding of the concepts discussed in the provided article. My expertise is rooted in years of experience in the field, backed by a comprehensive understanding of various investment instruments and market dynamics.
Now, let's delve into the key concepts highlighted in the article about the "5 Best Short Term Investment Options with Returns Rate."
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Liquid Funds – Best for low-risk Investors:
- Liquid funds are open-ended debt mutual funds that invest in money market instruments like commercial papers, certificates of deposit, and treasury bills.
- These funds have a short maturity period of 91 days, offering high liquidity.
- No lock-in period, no entry or exit loads, and they provide better returns compared to savings accounts and bank FDs.
- Taxation on gains depends on the investment duration.
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Corporate Deposits – Best for High Returns:
- Corporate deposits are offered by Non-Banking Financial Companies (NBFC) with varying maturity periods.
- Rated by credit rating agencies, allowing investors to assess creditworthiness.
- Offer higher interest rates compared to traditional bank FDs.
- Risk level depends on the credit rating, and interest earned is taxable.
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Bank Fixed Deposit – Best for Guaranteed Returns:
- Fixed Deposits (FDs) offered by banks and NBFCs provide guaranteed returns.
- Requires a lump sum investment with lock-in periods ranging from 7 days to 10 years.
- Interest compounding can be monthly, quarterly, half-yearly, or yearly.
- Tax benefits available for investments in Tax-Saving FDs under Section 80C.
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Recurring Deposits – Best for High Liquidity:
- Recurring deposits (RDs) allow regular monthly investments with fixed instalments.
- Offered by banks and post offices with tenures ranging from 6 months to 10 years.
- Interest is predetermined and compounded quarterly.
- Tax exemption under Section 80C only applies to Post Office RDs.
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Post Office Time Deposits – Best for Low-Income Group:
- Post Office Time Deposits (POTD) are FD schemes offered by the Post Office.
- Interest rates are determined by the Finance Ministry and vary based on government securities and sector yield.
- Tenures range from one to five years, and investments up to INR 1,50,000 per year qualify for tax exemption under Section 80C.
Why You Need the Best Short Term Investment Plan:
- Short-term investments have a tenure of 1 day up to 3 years, offering low-risk with guaranteed or predictable returns.
- Ideal for low-risk investors and short-term goals, highly liquid for easy redemption.
- Short-term investments are more stable and less volatile than equity, real estate, or gold.
- They can be converted from long-term to short-term as goals approach, aiding in capital protection.
In conclusion, the article provides valuable insights into the best short-term investment options in the Indian market, catering to various risk appetites and financial goals. Investors should consider their risk tolerance and financial objectives when choosing the most suitable option for their short-term investment strategy.
