Short-term investments are for those who are looking for an investment option to invest for a shorter duration.
The duration may vary from few months to say about one year. It is important to remember that while considering short term investment options, you should also consider the tax liability on such investments, which is always higher.
Risk is the main factor which should be considered before making any investment decisions, as risk and return go hand in hand. What this means is that if the financial instrument offers high returns the risk associated with it is also high.
Here are few investment products which you can consider for short term investment:
For the who are less risk averse, savings account is the best option to invest in. Some banks are offering higher interest rate in SB account such as Yes Bank, Kotak Mahindra Bank and RBL. This is good for those keeping large amounts in their SB accounts. These banks can offer you an interest rate of as much as 7 per cent.
Bank Fixed Deposits
Bank deposits are another option that you could consider. However, the interest on these deposits could be low, if the tenure is very short. These instruments are very much taxable. Here again, interest rates have dropped dramatically, making yields very poor.
Treasury securities or the treasury bills are offered by government and are a good investment option which offers high liquidity,and satisfying returns. The maturity dates vary from 91 days to 365 days.
Non convertible debentures are listed on the exchanges and can be purchased from there. Occasionally, there are a few NCDs that we keep having over a period of time. In any case it is a good short term investment instrument.
Fixed Maturity Plans
Fixed maturity plan is a close-ended debt fund, offered by mutual funds, which invest in debt and money market instruments. FMPs are invested in the instruments of same maturity as fixed in maturity of plan.
Tenure of FMPs vary from one-month to 3-years. As they are closed-ended, it means that once the NFO (new fund offer) closes, the scheme cannot accept any further investment.
Certificate of Deposit
A certificate of deposit or what is popularly known as CDs is nothing but money market instruments that are issued by banks and select Financial institutions in lieu of the money that is deposited.
The maturity period depends on the type of investor one is. For CDs issued by banks the maturity period should not be less than 7 days and not more than one year
Liquid fund, which are a type of debt fund, invest in securities with lower maturity term of a maximum of 91 days give investors high liquidity.