Many a times you may have large amount of resources that need to be deployed immediately as short term investments.
They may need to be liquid, tax efficient as well as offer high returns. We are considering various options under short term investments, including those as low as 15 days to as much as 1 year. Take a look at some of the best short term investment options. Also, go for the one year plan, but, also do remember the tax liability on such short term tenure instruments.
Ujjivan Small Finance Bank
If you are looking for a short term deposit of up to one year this could be an idle deposit. The bank offers an interest rate of 8 per cent for one year. This is an excellent rate.
Now, on the security and safety of your deposit, it is important to remember that small finance banks, need a license to operate from the RBI and they meet capital adequacy and other guidelines laid down by the RBI. So, in a way your deposits are relatively safe.
Having said that, these days there exists an element of risk in everything.
Small finance banks have emerged as an excellent short term investment bets, because of their interest rates. For example, Suryoday, a small finance bank offers you an interest rate of 8.75 per cent on a 24-36 month deposit, while offering 8.5 per cent on deposits of 12 to 24 months.
This is not a bad bet at all as the interest rates on these tenures at various commercial banks in the country could be barely 6 per cent. So, small finance banks is the way to go, if you are looking at short term investments. These were recently given license by the Reserve Bank of India.
It is important to note that the interest rates on bank deposits are subject to TDS.
Bandhan Bank short term deposits
If you have money to place for between 6 and one year, Bandhan Bank FDs has to be among the best short term investment plans.
You get an interest rate of 7 per cent on deposits of 6-12 months. No government or large private sector bank in the country currently offers you an interest rate of 7 per cent on a short term deposit. So, this can be a good short term investment option.
It can be easily encashed, making it very liquid. Remember, there might be the applicable charges on the FDs for early withdrawals. It is interesting to note that even SBI does not offer you such high interest rate, on even longer term deposits. Please note that bank deposits are very much taxable and hence plan accordingly.
RBL Bank Savings Account
This is the best place to park temporary money.
Say for example, if you have sold say a property and need to keep the money liquid to buy another property, you can open an RBL Bank Savings Account.
You get interest on savings bank account of up to 7.1 per cent, with other benefits like accident insurance cover of Rs 5 lakhs. You have a choice of placing in bank deposits, but, if you need the money early, you have to pay a pre-payment charges for early withdrawal.
Also remember, that savings bank account are exempted from interest income up to Rs 10,000. If you place money from Rs 1 crores to Rs 5 crores, the interest likely to be earned is 7.1 per cent. Between Rs 10 lakhs and Rs 1 crores it is 6.50 per cent and upto Rs 1 lakh it is 5.50 per cent.
If you are looking at deposits that have a maturity of 1 year, then the government of Kerala backed deposits of KTDFC are a good bet.
The company offers you an interest rate of 8 per cent for one year. This is not bad at all and is a good short term investment bet to make. One of the highlights here is that the deposits up to Rs 2,000 crores are backed by the government of Kerala.
Liquid Funds are mutual fund schemes, which invest in short term securities like government securities. They can offer you returns just like bank deposits. They are not as liquid as bank deposits, but can be slightly more tax efficient. Go for them only if you understand them. You need to do adequate research and study the tenure of the funds very carefully before you decide to buy or sell the funds.
Kotak Bank also offers an interest rate of 6 per cent on its savings account, which makes it a decent proposition for investment. However, the interest rate of 6 per cent per annum is applicable on savings account balance over Rs. 1 lakh and up to Rs. 5 crs. You get an interest rate of 5 per cent p.a. interest on savings account balance up to Rs. 1 lakh and 5.5 per cent below Rs 1 lakh.
The interesting thing about savings bank account is that, the income upto Rs 10,000 is free from tax.
Ultra Short Term Funds
They are also like liquid funds and are mutual fund schemes. Look for them, as they offer good returns in the short term. Again, variation in short term interest rates could affect the returns from these investments. Bulk of the money by the mutual funds are invested in high quality security. Slightly complicated to understand as compared to bank FDs, but can offer superior returns. One of the best short term investment options in a falling interest rate scenario.
What are short term investments?
Short-term investments are used to protect capital. They give low return, because the duration or the tenure of investment is poor. Short-term investments usually have a life of no more than three years.
These short term investments also called as the temporary investment or marketable security. The goal of short term investments is to also protect capital with a low-risk level.
However, with low risk, the return on short-term investments is very less. There are different types of short term investments. Fixed deposit, Recurring Deposit (RD) Investment, Mutual Funds, Stocks, Savings Accounts, Certificates of Deposit (CD), Treasury Bills and Bonds.
However, while choosing these investments risk and returns should be paramount. The above mentioned investment may offer good returns in the coming years.
If you are looking at a slightly greater tenure of say 3 years, which is not necessarily a short term tenure, one can consider several other options like equity shares. However, remember that this is a risky investment and you need to be very careful with how you invest.
You might also need to seek expert advise in this regard. One must also understand all of the tax implications that could arise in the case of investments. This would tend to reduce your overall yield and returns. Remember that interest income received from all of the above instruments are subject to taxes. This means you need to add the same to your total income before arriving at the tax liability.
If you need high returns, which are tax free the best bet would be the PPF. However, this is not a short term investment and you have to invest for a period of 15 years at the very least.