Short-term investments are financial tools made to assist you in reaching your monetary targets in a comparatively short time. Short-term investing works differently from long-term ones as you need to select stable investment instruments.
This article will explore some of the popular short-term investment plan options and help you comprehend the different investment plans that are out there.
Popular Short-term Investment Plan Options
Here are the best short-term investment plans, which you can consider.
- High-yield Savings Accounts
The high-yield savings account is an excellent choice if you want to save money for upcoming objectives and have easy access to it.
- Interest Rates: When it comes to interest rates, high-yield savings accounts usually give you better deals than standard savings accounts.
This table provides you with some instances of interest rates that are offered by various Indian banks:
| Bank Name | Interest rate |
| SBI | 2.70% |
| HDFC Bank | 3.00% – 3.50% |
| Kotak Mahindra Bank | 3.50% |
| Axis Bank | 3.00% – 3.50% |
| ICICI Bank | 3.00% – 3.50% |
- Liquidity: High-yield savings accounts are highly liquid and you can immediately access your accounts without incurring any fines.
- Suitability: Given that high-yield savings accounts are easy to access and offer relatively good returns compared to traditional savings accounts.
- Fixed Deposits
A Fixed Deposit (FD) is a type of financial instrument that allows you to deposit a lump sum amount with a bank for a set term. In return, you will earn a fixed interest rate.
- Interest Rates and Terms: Interest rates on fixed deposits differ according to the bank, amount, and tenure of the deposit. You can choose from a variety of tenures, usually ranging from 7 days to 10 years.
The tax-saving FD interest rates offered by a few Indian banks are displayed in the following table:
| Bank Name | FD interest rate |
| IDBI Bank Tax Saving FD | 6.10%- 6.85% |
| PNB Tax-Saving FD | 5.80%- 6.30% |
| HDFC Bank Tax Saving FD | 6.10%- 6.60% |
| SBI Bank Tax Saving FD | 6.10%- 6.60% |
- Safety and Returns: As fixed deposits are backed by banks, they are among the safest investment possibilities.
- Penalties: If you take your FD out before the maturity date, most banks charge you a penalty. The bank and length of the deposit determine the penalty.
- Liquid Mutual Funds
The kind of debt mutual fund that invests in short-term debt instruments with a maximum maturity of ninety-one days is called a liquid fund.
- Liquidity and Returns: High liquidity is a characteristic of liquid money. Usually, you have 24 hours to redeem your investment and receive the funds in your account.
- Risk: As liquid funds invest in high-quality, short-term debt securities, they are regarded as low-risk financial instruments.
- Suitability: For short-term storage of excess funds, liquid funds are appropriate. The liquid assets can also be utilized for systematic investment plans (SIPs) or as a contingency fund.
Performance of Top liquid funds:
| Liquid Funds | Returns |
| Aditya Birla Sun Life Liquid Funds | 7.4% |
| Mahindra Manulife Liquid Fund | 7.4% |
| Union Liquid Fund | 7.4% |
| Edelweiss Liquid Fund | 7.5% |
| Canara Robeco Fund | 7.4% |
- Recurring Deposits (RDs)
Banks and post offices provide a savings plan called a Recurring Deposit (RD). It lets you make recurring deposits of a set amount for a predetermined period of time.
- Terms and Interest Rates: Generally, RD interest rates are marginally higher than those of normal savings accounts. Thus, you have a range of tenure options to select from, spanning from 6 months to 10 years.
- Regular Savings: RDs promote systematic saving practices. With consistent deposits of a set quantity, you can accumulate a sizable corpus over time.
- Maturity and Taxation: You will get the entire amount invested plus interest at the conclusion of the RD term. Generally speaking, the interest you receive on RDs is taxable based on your income tax bracket.
- National Savings Certificate (NSC)
The Indian Post Office issues savings bonds backed by the government called National Savings Certificates (NSCs).
- Interest Rates and Tenure: The government sets the interest rate on NSCs, which stays the same for the duration of the investment. NSCs have a set five-year tenure.
- Tax Benefits: The tax benefits of NSCs are one of its main attractions. Section 80C of the Income Tax Act allows you to deduct investments made in non-redeemable certificates of savings (NSCs), which lowers your taxable income.
- Security and Refunds: Government-backed NSCs are regarded as highly secure investments. Even while the returns might not be as good, they nonetheless provide you with a reliable source of income.
Conclusion
Your risk tolerance, liquidity requirements, and financial objectives are some of the factors that decide which short-term investing plan is best for you. To control risk, it is highly advised that you diversify your investments over a variety of asset classes.
