Short-term Investment Plans: Balancing Liquidity & Returns

Short-term investment plans refer to instruments that can be easily liquidated and converted into cash. The tenure for such investments usually ranges from one day to up to five years. They include low-risk tools like fixed deposits, national saving certificates, and debt mutual funds.

Ideal for those desiring swift returns without committing to an extended investment horizon, short-term investments are safeguarded by reputable financial institutions. These plans provide an avenue to maximise earnings, offering a balance between liquidity and profitability.

Short-term Investment Options

Here’s an overview of some popular short-term investment options available to investors:

Investment Option	Minimum Investment	Potential Return
Savings Account	Varies (often minimal)	Low (2-6%)
Recurring Deposit (RD)	Varies (often minimal)	Moderate (6-8%)
Fixed Deposit (FD)	Varies (often minimal)	Moderate (5-9%)
National Saving Certificate (NSC)	₹100	Moderate (6-7.9%)
Post-Office Time Deposit	₹100	Moderate (5-7.5%)
Treasury Bills (T-Bills)	₹100	Variable, depending on auction yield
Debt Mutual Funds	₹1,000	Moderate (8-10%)
Liquid Funds	₹1,000	Moderate (5-8%)
Large Cap Mutual Funds	₹1,000	Moderate-High (8-20%)
Gold/Silver	Varies	High (variable, risk dependent)

Disclaimer: These interest rates have been updated as of December 2023 and are subject to change.

Benefits of Short-term Investment Plans

Depending on your financial goals and risk tolerance, short-term investment plans might be the right choice for you. Here are some key advantages:

Lower minimum investment

Many short-term options, like savings accounts and recurring deposits, require minimal investments. This makes them accessible to new or budget-conscious investors as well.

Shorter lock-in periods

Compared to long-term investments, short-term plans offer more flexibility as you can access your money sooner (though potentially with early withdrawal penalties). This is ideal for unexpected expense Read Mores or short-term financial goals. Read Less

Liquidity

Short-term investments are known for their high liquidity. Investors can easily convert their investments into cash or cash equivalents without incurring significant losses or facing lengthy redemption periods.

Capital Preservation

Short-term investments typically involve lower levels of risk compared to long-term options. While they may not offer the potential for high returns that riskier investments might, they are more focuse Read Mored on preserving capital. This makes short-term investment plans suitable for individuals who prioritise the safety of their principal amount. Read Less

Low Volatility

Short-term investments are generally less susceptible to market volatility than long-term investments. This stability provides a sense of security for investors, particularly those who may be averse to Read More significant fluctuations in the value of their investments. The reduced volatility is conducive to maintaining a steady financial position. Read Less

Things to Consider Before Making a Short-term Investment

Risk Tolerance

Assess your risk tolerance to align investments with your comfort level. While short-term options are generally low-risk, understanding your risk appetite is crucial.

Financial Goals

Clearly define your financial goals. Whether it's saving for a vacation, emergency fund, or a down payment, knowing your objectives helps tailor your investment strategy.

Safety of Funds

Prioritise the safety of your principal amount. Opt for investments with reputable financial institutions to minimise the risk of capital loss.

Liquidity Needs

Evaluate how quickly you may need access to your funds. Short-term investments are known for liquidity, but specific options may have varying redemption periods.

Tax Implications

Understand the tax implications of your investments. Some short-term options may offer tax benefits, contributing to overall returns.

Market Conditions

Stay informed about prevailing market conditions. While short-term investments are less volatile, external factors can impact returns.

Diversification

Consider diversifying your short-term portfolio to spread risk. Explore different investment options to create a well-balanced strategy.

Interest Rate Trends

Keep an eye on interest rate trends. Short-term investments are influenced by interest rates, and being aware of fluctuations can aid decision-making.

These types of investments are often held with the government or with trustworthy and reliable corporations. Some of the best short-term investment options include FDs, RDs, treasury bills, government or corporate bonds, and national saving certificates.

Understand that investments are heavily dependent on your circumstances and financial goals. However, consider factors such as safety of funds, liquidity and tax benefits before making any investment decisions. Now that you have explored some popular short-term investment plans, choose schemes that align with your goals.

Disclaimer

The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort.

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

What are the top short-term investment options?

You may invest in any of the following plans:

Liquid funds
Short-term corporate bonds
Government bonds
Certificates of Deposit
Money market accounts

Can short-term investments be considered assets?

Yes, whether you invest for a month or a year, short-term plans are assets.

What are the pros of investing in short-term plans?

Here are a few benefits of investing in short-term investments:

Minimal duration
Easy liquidity
Better transparency
High flexibility

What is the purpose of a short-term investment?

When you are looking to utilise funds immediately but also want to generate profits rather than parking them as idle cash, such short-term plans are ideal.

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What Are Short-term Investment Plans?

Short-term Investment Options