In India, The Best Short-Term Investment Options

In case of short term investments, the money can be converted into cash after a tenure of 3 to 12 months. Some of the popular short term investments include high-yield savings accounts, money market accounts, treasury bills, and government bonds, which are quality products with highly liquid assets.

What is Short Term Investments?

Short term investments are designed to provide considerable returns in a fairly short span of time which can be a year or even a few months. These plans are more focused to meet the expected near future expenses. Usually, investors who are more inclined towards short-term investments options aren’t really interested in waiting for years in order to get their money multiplied many times over. Instead, they look for quick and effective results. This is where short term investment plans come to their rescue.

With short term investment plans, one can expect optimum returns to meet their financial objectives, but not massive results as in the case of long-term investments options. Owing to the lower risks associated with short term investment plans, they often rank high on the popularity charts of seasoned investors.

Best Short Term Investments Options

Let’s take a look at the Best short term investment options to invest in 2022.

1. Recurring Deposits

• Tenure- one can open an RD account for tenure as less as 6 months and in multiples of 3 months up to 10 years.
• Liquidity- Normally, a recurring deposit scheme comes with a minimum lock-in period of one month. In case of premature closure of the account within one month, only the principal amount is paid to the depositors and no interest is paid to the depositor. 
• Returns- As one of the best short-term investment plans the interest rate applicable on Recurring Deposit accounts are the same as Bank FDs. Currently, for the tenure of 12 months and above, the interest rate applicable is 6.5% per annum.  The interest will be applicable as on the date of the first deposition.
• Taxation- The interest earned on the invested amount is added to one’s income and is taxed as per one’s income slab rate. In these short-term investment plans, the TDS is deducted in case the interest earned is more than Rs.10,000.

2. Debt Instrument

Debt instruments are yet another brilliant short term investment plan, especially for risk-averse individuals. Securing capital and providing good results with no fear of market volatility, debt mutual funds are a good place to invest. Offering returns as high as up to 10.5%, this is a good choice for short tenure savings.

• Tenure-  The tenure of short-term investment plan debt funds is divided into 3 categories.
• Liquid fund- In this fund option, the investment is made into money market and debt securities with the maturity of investment securities up to 91 days.
• Ultra-short-duration fund- Under this fund option, the money is invested in debt and money market instruments for the tenure of 3 months -6 months.
• Low duration fund- Under this fund option, the money is invested in debt and money market instruments for the tenure of 6 months -12 months.
• Liquidity- liquid debt funds provide high liquidity in investment. The liquid debt fund offers a maximum maturity of 91 days and provides higher returns as compared to the savings account.
• Returns- debt fund is known as one of the best short-term investment plans as it offers low risk and regular returns to the investors. Currently, debt funds offer an interest rate of 7-9% on investment
• Taxation- capital gain tax is charged on debt fund. The Short-term capital gain tax (STCG) is applicable to the capital gains earned on the fund which is held for the tenure of 3 years. Long-term capital gain tax is applicable on the capital gains earned on the fund which is held for the tenure of more than 3 years.

3. Bank Fixed Deposits

Fixed deposits are also known as short-term investments savings instruments in which the individual puts a lump-sum amount in the bank for a fixed time period. The fixed deposit scheme is known as one of the safest short-term investments options which offer a fixed interest rate on investment and provides guaranteed returns.

• Tenure- As one of the safest short-term investment plans, the tenure of a fixed deposit account ranges from 7 days, 14 days, 30 days, 45 days to up to 10 years. One can renew the deposits on maturity and can reinvest it.
• Liquidity- The fixed deposit scheme not only offers high liquidity on investment but also manages reinvestment risk.
• Returns- Fixed deposit account offers a fixed interest rate on investment and the returns are guaranteed at the end of the fund tenure. The current interest rates offered by fixed deposits are 8%-9% for more than 1 year of investment. The interest rate on fixed deposit schemes does not change even in case of market volatility.
• Taxation- Depending on the head of income the individual falls under, FD attracts a high-income tax rate up to 30%. Even the tax is applied to the accrued interest. Fixed deposits do not offer any tax deduction to the investors.

4. Post-Office Time Deposits

Post-office time deposits are one of the safest and best short-term investment plans which offer assured returns to the investors. The scheme is offered by India post and is very popular in rural and remote areas of India.

• Tenure- one can open a post office time deposit scheme for a tenure of 1 year, 2 years, 3 years or 5 years.
• Liquidity- In a post office scheme, the interest applicable on the deposited amount is on a yearly basis. Before the completion of 6 months, the post office scheme does not allow any premature withdrawal.
• Taxation- 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. 

5. Large Cap Mutual Funds

Large-cap mutual funds are short-term investment plans where the investment is made selectively in the stocks of large business organizations to achieve substantial growth in a shorter period of time. These excellent small investment plans can give you quick and smart returns within 1 to 3 years of investment tenure.

• Tenure- one can invest in the large-cap mutual fund for the tenure of 3-5 years.
• Liquidity- The large-cap mutual fund scheme offers high liquidity to the investors along with high returns on investment.
• Returns- As a safe short-term investment option, the risk involved in large-cap mutual fund investments are low and offers a high return of 8%-13%
• Taxation- capital gain tax is charged on debt funds. The Short-term capital gain tax (STCG) is applicable to the capital gains earned on the fund which is held for the tenure of 3 years. Long-term capital gain tax is applicable on the capital gains earned on the fund which is held for the tenure of more than 3 years.

Conclusion

Now you don't need to ponder anymore on issues like where and how much to invest. If you're looking to invest your money in short-term investment plans, then above mentioned investment options could be the best destinations for you to stop-think-invest.

Also read - Beginner's Investment Guide