Do you have a short term goal which you need to reach soon? Then it’s time to pool in your savings and invest it wisely. Meeting a short term goal is almost always impossible unless you make a short term investment judiciously.
Very simply put, short term investment plans allow you to invest for a period of one day to 3 years. An investment made for more than three years is generally regarded as a mid term or long-term investment.
Making a short term investment is an excellent way to ensure that your surplus money keeps growing the time you need it to meet your short term goals.
How to Choose a Short Term Investment Option?
Two things have to be kept in mind while choosing short term investment plans:
Liquidity: the asset or the plan that you invest in should not block your money by making it mandatory to hold onto the investment for some time. You should have the liberty to take out the money whenever you need it.
Low Risk: Making a short term investment in a risky asset can cause a loss if the financial markets or the economy performs poorly. Ensure that you make the short term investment in a low-risk asset which provides you with a medium to high level of safety.
Since short term investments are generally made in low-risk assets, the returns in most cases may not be high. However, it is still better than keeping your money idle and not earning any returns on it at all.
Goals that can be fulfilled with short term investments:
Short term goals may include:
- Higher education for your child,
- Buying a car next year
- Booking an apartment
- An overseas trip
- Buying jewellery during the festival season this year, etc.
Best 6 Short Term Investment Options in India
1. Savings Account:
The commonest investment people make is keeping money in a savings bank account. You can withdraw the money from a savings account around the clock by visiting a nearby bank branch or ATM. Since these accounts carry almost no risk and provide high liquidity, the returns are extremely moderate, ranging from 4% to 6%.
2. Fixed Deposit:
This is the second most popular investment option. In India, fixed deposits can be opened for a term as short as 7 days. However, the longer the tenure of your fixed deposit, the better is the interest that you will earn from it. You can open a fixed deposit online by logging on to the net banking portal of your bank, or you can just walk into the bank and request for a fixed deposit to be created for you. This is one of the best investment options for retired persons and senior citizens because of the low-risk involved in investment in a fixed deposit.
3. Mutual Funds:
For those who are looking for a little better return than that offered by savings accounts and fixed deposits, mutual funds are an excellent option. Every mutual fund offers several types of schemes which are designed to fulfill the investment needs of people with a variety of goals and risk profiles.
If you want to make an investment for the short term, then choose a mutual fund that invests in debt instruments. The other type of mutual funds, known as equity funds, invest in equity instruments and are generally good for long-term investments.
Investment in mutual funds carries some degree of risk, and therefore the returns can often be better than what you will get by putting your money into a savings account or fixed deposit.
4. Liquid Funds:
these funds invest in very short term debt instruments that have maturity periods of less than 91 days. These are excellent short term investment options. Though the returns are low, still you can expect to get more than the returns you will get from keeping your money in the savings bank account.
5. Fixed Maturity Plans:
These short term investment plans invest in government bonds, treasury bills, certificates of deposits and select other debt instruments. However, fixed maturity plans have a specified maturity date and will not allow you to withdraw your investments before that date. Hence, if you’re looking for liquidity, then do not use fixed maturity plans.
6. Equity Linked Savings Schemes (ELSS):
If you can invest for 3 years, then choose an Equity Linked Savings Scheme (ELSS). These are a very popular type of mutual funds, primarily due to the tax savings that it provides under section 80 C. However, as these have a lock-in period of 3 years, they are not ideal if your short term goal is less than 3 years away.
The golden rule for investment is that if you have surplus money in your hand, don’t keep it idle. Invest in one of these short term investment options and let it grow. Any return that you make on these investments will help you to reach your short term goals faster.