There are three types of investments on the grounds of maturity period i.e. short term, mid-term and long term. In the short term, investors with priorities like purchasing a car or taking a luxurious break are more likely to spend. Short-term investment strategies are relatively liquid investment vehicles in which investors are typically able to deposit their corpus for short periods ranging from 3 months to 12 months. The basic criteria of short-term investors are the safety of capital and returns and the fast growth of wealth, considering the same short-term investments are ideal. Debt funds, savings accounts, fixed deposits, money market funds, treasury bills, government bonds and so on are some of the most common short-term investment plans. However, apart from all these below are the top 5 short-term investment strategies that will enable investors in this fiscal year to appreciate their capital.
As the title implies, investors can make monthly deposits in RD against which they can reap flexibility, assured returns and liquidity. From time to time, interest rates on recurring deposit are modified by banks. Currently, by opening an RD account in IndusInd Bank will enable you to get an interest rate of 7% to 7.50% (for senior citizens) for a tenure of 1 year to 1 year 2 days. As a term-deposit, investors consider RDs to be a low-risk but lucrative investment choice. For a tenure of at least 6 months and up to 10 years, one can also deposit in RD. In RD accounts, a lock-in duration of 1 month applies. In the event of a premature withdrawal or exit within one month, only the principal amount spent will be paid to the holder and not interest.
FDs are the investment plans or schemes that banks and some financial institutions provide to the eligible investors with a tenure ranging from 7 days to 10 years. Fixed Deposits are ideal for those who want to deposit their capital for a fixed period of time and cherish assured yield in return. If compared to savings accounts, fixed deposits provide you with higher returns along with tax benefits, sweep in deposit facility, loan and so on. With an interest rate of 8 per cent to the general public and 8.25 per cent for senior citizens, Kerala Transport Development Finance Corporation Limited (KTDC) is currently providing higher returns on FD for a tenure of 1-year. According to the income slab, the interest received is added to the customer's income and taxed accordingly. A Tax Deduction at Source (TDS) will be issued by the bank if the interest received is more than Rs.10,000 in a year.
Post Office Time Deposit
A short-term investment scheme established by India Post is Post-Office Time Deposits (POTD). This investment plan is fairly prevalent in India as it comes with different tenure options which are 1 year, 2 years, 3 years and 5 years respectively. You can start investing in this scheme with a minimum amount of Rs 1000/- and in multiple of 100 with no upper limit. This scheme is now providing interest of 5.5% for 1-year to 3 years and 6.7 % for a maturity period of 5 years respectively. The interest rates are paid annually but calculated quarterly and if you deposit in this scheme for a period of 5 years, under Section 80C of the IT Act, 1961, you will be able to take advantage of the tax benefits.
National Savings Certificate
This short-term investment scheme can be purchased from any post office which will not only give you assured returns but also provide you tax benefits, as the scheme is backed by the government. Considering the same, this scheme can be a good short-term investment plan for risk-averse investors or for those who want to diversify their investments across fixed income instruments. Under this scheme, the interest rates are subject to periodic adjustments in line with announcements taken by the Ministry of Finance. For Q1 FY 2020-21 (April to June), the relevant NSC interest rate is 6.8 per cent (for 5 years NSC). Under Section 80C of the IT Act, you can also get the benefit of tax deductions.
One of the most common investment strategies favoured by most short-term investors is a savings account. It is an account maintained at a bank or other financial establishment where additional money can be kept. As the investors can withdraw the deposited amount whenever they want, this makes the savings account more liquidity in nature. On Saving Accounts, interest rates currently vary from 3.5 per cent to 7.25 per cent based on the tenure and amount of the deposit. And nowadays, most of the banks are offering a zero balance saving account, which ensures that to keep your account running, you don't have to hold any minimum balance.
In a comparatively shorter period of time that can vary from a few months to a year, short-term investments offer better returns and liquidity. Short-term investment options are mostly considered by investors to cover their financial goals in the near future. Due to shorter maturity periods, short-term investments also have restricted risk exposure. In a short period of time, they can make significant returns. Therefore, short-term investment options give investors attractive yields, strong liquidity and a low-risk threshold.