Short-term Investment Plans with High Returns in India
Varieties of Short-Term Investment Avenues
Short-term investments, commonly referred to as temporary investments or marketable securities, encompass assets that can be swiftly converted into cash within a span of 5 years. These assets of high liquidity offer a secure and transient harbor to stow away surplus funds.
Short-term investment avenues bestow the advantage of immediate liquidation, ranging from as brief as 3 to 12 months. Among the favored choices in this realm are high-yield savings accounts, debt mutual funds, money market accounts, treasury bills, and government bonds. These financial instruments are characterized by their elevated quality and a profusion of highly liquid assets.
Decoding Short-Term Investment Paradigm
Short-term investments serve as financial instruments that yield substantial returns over a comparatively abbreviated duration, spanning from several months to a single year. These investment vehicles cater to individuals aiming to fulfill their imminent financial aspirations.
In contradistinction to long-term investments, which demand protracted waiting periods for considerable returns to materialize, short-term investment plans facilitate prompt and efficacious outcomes. They extend investors the prospect of reaping optimal returns devoid of the prolonged gestation associated with long-term investment alternatives.
The allure of short-term investment plans lies in their mitigated risk profile, rendering them a preferred choice among seasoned investors. Though the returns may not rival those of their long-term counterparts, short-term investment avenues remain a judicious selection for individuals aspiring to accomplish their financial milestones within a compressed time frame.
3. Best Short-Term Investment Options
|Investment||Rate of Return per annum||Holding Period|
|Recurring Deposits||4-8 %||7 Days to 10 Years|
|Money Market Account||6-7%||< 13 Months|
|Debt Instrument||7-9%||3 – 12 Months|
|Bank Fixed Deposits||8-9%||7 Days to 10 Years|
|Post-office Time Deposits||5.5%||1 – 5 Years|
|Large Cap Mutual Funds||8-13%||3 – 5 Years|
|Corporate deposits||6-12%||1 – 3 Years|
|Treasury Securities||7.5%||91 Days to 364 Days|
|Gold or Silver||Variable||–|
|Stock Market Derivatives||Variable||–|
3.1 Recurring Deposits
Investment Vehicle with Repeating Benefits
The option to initiate a Recurring Deposit (RD) account presents itself with a tenure as brief as 6 months, and in increments of 3 months, extending up to a decade.
Commonly, a recurring deposit scheme entails a minimum lock-in period of one month. Should the account be closed prematurely within the initial month, solely the principal sum is disbursed to the depositors, sans any accrued interest.
Ranked among the premier short-term investment plans, the interest rates for Recurring Deposit accounts mirror those of Bank Fixed Deposits (FDs). Currently, for durations of 12 months or more, the annualized interest rate stands at 6.5%. Interest is computed as of the initial deposit date. It is prudent to leverage online FD calculators to evaluate prospective returns before committing to investment.
The accrued interest on the invested amount is amalgamated with the individual’s income and taxed according to their applicable income slab rate. In the context of these short-term investment plans, Tax Deducted at Source (TDS) is withheld if the earned interest surpasses Rs. 10,000.
3.2 Money Market Account
Renowned as Liquid Funds
Liquid funds, colloquially known as money market accounts, are devised to provide both capital security and lucrative returns. They serve as an impeccable choice for short-term investments. With a maturity threshold of 91 days, these instruments obviate any binding duration, ensuring notable liquidity and minimal risk within the mutual fund domain.
The window to inaugurate a money market account spans fewer than 13 months.
This category of short-term investment plans endows investors with substantial liquidity, permitting swift redemption.
Returns associated with money market funds are not standardized or fixed. At present, Money Market Funds yield an annual interest rate of 7%. For optimal outcomes, investors should harmonize their investment horizon with the maturities of other investment securities within these funds prior to allocation.
In the realm of this short-term investment strategy, gains accruing from the invested sum are assimilated into the individual’s income and subsequently taxed in alignment with the pertinent taxation brackets. However, profits stemming from investments exceeding 36 months are taxed at a rate of 20%, post-indexation adjustments.
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3.3 Debt Instruments
Navigating Short-Term Investment Waters with Debt Instruments
Among the stellar short-term investment plans, debt instruments particularly cater to risk-averse individuals. Bolstering capital security and furnishing commendable yields sans susceptibility to market fluctuations, debt mutual funds present an astute avenue for investment. Offering returns scaling heights of up to 10.5%, this emerges as an enticing choice for short-term saving endeavors.
The timeline governing debt fund short-term investment plans is bifurcated into three categories.
- Liquid Fund
Under this fund category, investments are directed towards money market and debt securities with investment securities maturing within a span of up to 91 days.
- Ultra-Short-Duration Fund
Within this fund realm, funds are channeled into debt and money market instruments with tenures extending from 3 months to 6 months.
- Low Duration Fund
Within this fund dimension, finances are allocated to debt and money market instruments with periods spanning from 6 months to 12 months.
Liquid debt funds proffer heightened liquidity in investments. These funds embrace a maximum maturity period of 91 days and furnish superior returns when juxtaposed with conventional savings accounts.
A debt fund, acclaimed as a top-tier short-term investment strategy, extends a blend of low risk and consistent returns to investors. At present, debt funds yield interest rates ranging from 7% to 9% on investments.
Taxation is levied on capital gains from debt funds. Short-term capital gains tax (STCG) pertains to gains realized on funds held for a tenure of 3 years or less. Long-term capital gains tax applies to gains from funds retained for durations surpassing 3 years.
3.4 Bank Fixed Deposits
A Glimpse into Fixed Deposit Terrain
Bank Fixed Deposits (FDs) stand as short-term investment vehicles wherein individuals place lump-sum amounts in banks for designated time frames. Renowned as one of the most secure short-term investment options, the scheme provides a predetermined FD interest rate on investments, guaranteeing returns.
As a secure choice among short-term investment plans, the tenure of fixed deposit accounts spans from 7 days, 14 days, 30 days, and 45 days, up to a decade. Deposits can be renewed and reinvested upon maturity.
The framework of fixed deposit schemes not only yields elevated liquidity for investments but also mitigates reinvestment risk.
Fixed deposit accounts proffer a steady interest rate on investments, with returns guaranteed at the conclusion of the fund’s tenure. Presently, interest rates for fixed deposits range between 8% and 9% for investments spanning over 1 year. These interest rates remain unwavering even in the face of market volatility.
Tax implications are contingent upon the income bracket within which the individual falls.
3.5 Post-Office Time Deposits
Exploring the Haven of Post-Office Time Deposits
Post-Office Time Deposits, often recognized as Post Office Fixed Deposits, stand as a pinnacle among secure and prime short-term investment strategies, guaranteeing steadfast returns to investors. This scheme, extended by India Post, has gained remarkable traction in the rural and remote enclaves of the nation.
The option to engage in a Post Office Time Deposit scheme manifests for periods of 1 year, 2 years, 3 years, or 5 years.
Within the realm of the post-office scheme, the interest on the deposited sum is computed on an annual basis. The scheme, however, precludes any instance of premature withdrawal prior to the culmination of 6 months.
|Account Tenure||Applicable Interest Rate (p.a)|
- Tax Implications
- The interest garnered from the deposited amount is incorporated into the individual’s income and subjected to taxation in alignment with the prevailing income tax slab rate.
The interest earned on the deposited amount is added to the income of the individual and is taxed according to the income tax slab rate the individual falls under.
3.6 Large Cap Mutual Funds
Unveiling the Realm of Large Cap Mutual Funds
Large-cap mutual funds serve as short-term investment strategies wherein investments are meticulously allocated to stocks of prominent business entities, with the aim of reaping substantial growth within a compressed time frame. These adept small investment plans facilitate swift and astute returns, spanning 1 to 3 years of investment tenure.
Investment in large-cap mutual funds can be undertaken for tenures of 3 to 5 years.
Large-cap mutual fund schemes furnish investors with heightened liquidity, coupled with attractive returns on investment.
Representing a secure short-term investment alternative, large-cap mutual fund investments bear low risk and offer considerable returns, ranging from 8% to 13%.
Similar to debt funds, capital gains tax is applicable to large-cap mutual funds. Short-term capital gains tax (STCG) pertains to gains realized on funds held for a tenure of 3 years or less. Long-term capital gains tax applies to gains from funds retained for durations surpassing 3 years.
3.7 Gold or Silver
Investment Trees of Precious Metals
Gold and silver stand analogous to evergreen trees within the investment forest, serving as versatile options for both short and long-term investments. These investment plans assuredly yield substantial returns as the prices of gold and silver continue their upward trajectory. Thus, these secure and risk-averse short-term investment plans perpetually retain their allure, unmarred by the passage of time.
3.8 Treasury Securities
Glimpse into Treasury Security Realm
Treasury securities, encompassing treasury bills, epitomize another robust short-term investment avenue, offering a trifecta of high liquidity, security, and gratifying returns. The maturity dates of these securities span from 91 days to 365 days.
Rate of Return
The rate of return in Treasury Securities stands at an impressive 7.5% per annum.
3.9 Stock Market /Derivatives
Venturing into Market Territories
Shares, commodities, and derivatives emerge as favorable terrain for individuals armed with comprehensive market knowledge and a penchant for heightened risk. The trajectory of this investment can be tailored for short or extended durations, contingent upon the investor’s financial aspirations.
3.10 Investments in NCDs/Corporate or Company Deposits
Secured Avenues of Investment
Last but assuredly not least, an inclusion on our roster is Non-Convertible Debentures (NCDs) or company deposits, presenting a distinctive small investment plan. This scheme empowers individuals to opt for secured NCDs, safeguarding their capital, while concurrently offering attractive interest rates ranging from 9% to 12%.
4. How Short-term Investments Operate?
Unveiling the Dynamics of Short-Term Investments
Short-term investments are typically harnessed by financially robust entities to augment returns on surplus capital, all while shielding their capital. These investments aim to strike a balance between safeguarding assets and generating commendable returns. For an investment to qualify as short-term, it must exhibit liquidity and possess a maturity date falling within the 12-month threshold.
The crux of the best short-term investments involves swift returns, low risk, high liquidity, and accommodating investment sizes. Representative examples encompass cash investments, cash equivalents, money markets, financial assets, and short-term investment funds.
5. Some Related Terminology to Short-Term Investment Plans
5.1 Cash Investment
A short-term bond with a maturity period of fewer than 90 days, rendering returns in the form of interest payments. Despite its status as a secure investment avenue, cash investment typically yields modest returns.
5.2 Cash Equivalents
These investment securities confer elevated liquidity and boast a high credit rating. As a short-term investment option, these securities align with a low-risk, low-return profile.
5.3 Money Market
The money market encompasses a segment of the financial domain where instruments of short-term maturity and heightened liquidity are traded. Money market funds are venerated for their safety, albeit rendering relatively modest returns in comparison to other investment options.
5.4 Financial Assets
Financial assets denote liquid assets generating profits via ownership claims or contractual rights. Examples encompass stocks, cash, bonds, mutual funds, and bank deposits.
5.5 Short-term Investment Fund (STIF)
STIFs epitomize a cautious investment fund extending low risk and substantial returns. These funds are characterized by liquidity and serve as a safe conduit for realizing short-term financial objectives.
A Synopsis of Short-Term Investment Panorama
Short-term investments stand as an optimal conduit for garnering elevated returns with minimal risk. By adeptly selecting appropriate investment avenues, individuals can not only preserve their capital but also attain short-term financial objectives. Thus, individuals are encouraged to embark upon a journey of informed investment choices that resonate with their financial aspirations, thereby embarking on a journey toward financial security and growth. The array of options highlighted above serve as welcoming havens to transcend the realm of speculation and enter the realm of productive investment.