10 Short-Term Investment Plans in India you must Check Out (2024)

Investors are always searching for suitable safe investment options with good returns to securely park their funds for a limited duration until the need arises.

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At the same time, the regular savings bank account is the go-to choice; numerous alternatives exist. 

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Short-term investments are characterized by high liquidity, enabling straightforward conversion into cash without compromising the initial investment's value. 

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Many individuals are attracted to these short-term investment plans with high returns over , as they help fulfill immediate financial goals or provide a financial cushion in case of unforeseen contingencies.

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To dive deeper into the best investment options for short-term purposes, let's explore the best short-term investment plans in detail.

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What is a Short-term Investment Plans?

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The main difference with long term investment plan and short-term investment plans is that its tailored for financial goals within a relatively short time frame, usually less than five years. 

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These investment options are ideal for addressing specific and pressing financial needs. 

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Whether you're preparing to cover your child's impending graduation expenses, considering a motorbike purchase for them post-graduation, or planning for a family luxury car acquisition within three years, short-term investment plans provide the flexibility and stability to help you achieve these goals.

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These plans offer fast, profitable results with low risks, making them popular for short-term investors.

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Short-term investment plans involve strategically placing funds into financial instruments such as treasury bills and near-maturity corporate bonds. 

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These options are among the best short-term investment plans, offering the opportunity to earn interest on surplus funds while maintaining high liquidity.

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Requirements for Short-Term Investment Plans

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When considering short-term investment plans, there are two critical criteria to consider. Firstly, these investments must prioritize liquidity, ensuring that funds can be readily accessed when needed. 

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Secondly, the investment horizon should be restricted to 12 months, aligning with the best short-term investment plans.

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An illustrative example of a short-term investment plan is a bond with a maturity date falling within this 12-month timeframe. 

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These bonds are often regarded as one of the best investment options for short-term financial goals. 

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Here are some characteristics of Short-Term Investment Plans

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1. No specific maturity date.
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2. No binding restrictions on partial or complete withdrawals.
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3. Offer relatively modest yet consistent returns.
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4. Come with minimal investment risk.

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Benefits of Short-Term Investment Plans

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1. These plans enable the spreading of tax obligations over five years. This gradual tax approach is more manageable than facing a significant tax burden in a single financial year.
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2. They provide peace of mind, as you won't face the pressure of dealing with substantial tax payments while striving to achieve your financial goals.
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3. These plans offer financial protection for your family in case of unforeseen events.
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4. There's a limitation in that insurers typically offer a maximum life cover of up to 20 times your annual income.

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Considerations Before Investing in a Short-Term Investment Plan

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When contemplating a short-term investment plan, it's crucial to aim for the optimal balance between safety, liquidity, and tax efficiency.

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Ideally, the best short-term investment plans, which are often sought after for their potential to provide high returns, should encompass the following:

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Capital Preservation -The foremost priority in a short-term investment plan is safeguarding your invested capital.  Preserving your capital is essential, as the risk of losing your initial investment is typically unpleasant.

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Liquidity - Liquidity is the ease with which an investment can be converted back into cash. Short-term investment plans should offer this flexibility. If an investment locks your funds for a predetermined period, it defeats the purpose of a short-term investment.

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Tax Considerations - Taxes can significantly impact your returns from a short-term investment plan. Although short-term investment plans may not primarily focus on generating substantial interest or capital gains, minimizing tax liabilities is advantageous. 

There are two types of taxation to be aware of in short-term investment plans: they are

- Interest Income

- Capital Gains

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Here are Short -Term Investment Plans to consider:

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1. Savings account

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A savings account is a typical short-term investment plan in India. It offers the convenience of debit cards linked to the accounts, a notable feature. 

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However, if you intend to set aside funds for specific future expenses, it's advisable to explore alternative investment options.

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In India, the returns for savings accounts typically offer an interest rate ranging from 2% p.a. to 7% p.a. These accounts prioritize liquidity over substantial earnings.

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2. Treasury securities

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Treasury securities, commonly known as T-bills, are short-term money-market instruments backed by the government. It is one of the best investment options for the short term.

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The Reserve Bank of India (RBI) issues these T-bills through its open market operations (OMO), and they come in three maturity periods: 91 days, 184 days, or 364 days.

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It ensures capital safety and offers consistent returns within a year or less. Additionally, you can trade these bills for quicker access to funds.

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In terms of returns, T-bills typically yield around 7.5% per annum.

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3. Fixed Deposits

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Fixed Deposits (FDs) are widely regarded as one of the safest and best investment options for the short term in India. What makes them convenient is the ability to invest in FDs directly through your bank account, simplifying the process of securely storing surplus funds for short periods.

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In contemporary times, FDs can be established for durations ranging from as short as seven days to a maximum of 10 years.

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For returns, FDs typically provide interest rates varying from 2.5% to 8%, depending on the chosen duration.

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3. Equity Mutual Funds

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Equity Mutual Funds, or Arbitrage funds, offer greater tax efficiency when held for over a year.

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Even though equity funds may permit withdrawals after just 12 months, withdrawing your capital too early may lead to potential losses.

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Returns from equity funds change significantly depending on the stock market and how long you invest your money.

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4. Corporate Deposits (CDs)

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Corporate deposits are short-term Investment plans that offer flexibility in terms of investment durations.

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The rules for exiting corporate deposits are similar to bank FDs, and early withdrawals may result in a partial loss of interest.

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In terms of returns, the rate of return on corporate deposits can range from 6% to 12%, contingent on the company's risk profile.

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5. National Savings Certificate (NSC)

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The National Savings Certificate (NSC) is a deposit scheme with a 5-year tenure, and it offers interest payouts upon this period; you transfer the certificate to other investors in case of an urgent need for the draw.

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The rate of reform NSC VIII Issue, effective from April 1, 2020, is 6.8%.

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6. Recurring Deposits (RDs)

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Recurring Deposits (RDs) serve as a secure short-term investment plan, offering the flexibility of various tenures. 

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You can initiate an RD account for as short as six months, making it one of the best short-term investment plans, and extend it in multiples of 3 months, with a maximum duration of up to 10 years.

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Presently, for tenures of 12 months or more, the interest rate stands at 6.5% per annum. 

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7. Liquid Mutual Funds 
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They are one of the best investment options for the short term, which are particularly attractive as short-term investment plan options due to the following key features:

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• Potential for money market-linked returns.
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• Exceptional liquidity, enabling withdrawals as soon as the next business day (T+1 day) with no exit charges.
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• Investing in this option is great if you want to earn more quickly, even if it's uncertain. But remember, if you take out your money before 36 months, you might have to pay taxes on the profit you made.

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Regarding returns, these funds typically offer a range of 2% to 6% based on your holding period.

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8. Debt Mutual Funds

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Debt Mutual Funds are a good choice for short-term Investment plans if your horizon is less than five years but more than three years.

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These funds track volatile markets. Holding for 3+ years offers tax benefits, but you must beware of early withdrawal fees.

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Debt mutual funds generally yield 6-9% per year based on investment duration and type.

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9. Large Cap Mutual Funds

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Large Cap Mutual Funds is an attractive short-term investment plan that strategically allocates investments to the stocks of established, prominent corporations. 

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These small yet highly effective investment plans aim to achieve substantial growth within a relatively short 1 to 3-year investment horizon, making them one of the best short-term investment plans with high returns.

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Large Cap Mutual Funds offer potential returns of 8-13% with relatively low risk.

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10. Stocks, commodities, and derivatives markets

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Stocks, commodities, and derivatives markets can serve as short-term investment plans with high return potential.

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These investments offer flexibility without a minimum holding period, making them suitable for short-term goals. However, they come with substantial risks, so consider your risk tolerance. Returns vary based on market conditions.

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Conclusion

In summary, short-term investment plans in India offer flexibility for financial goals within a few years.

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Options like savings accounts, T-bills, FDs, mutual funds, and more cater to different needs. It's essential to pick the one that fits your goal, how much risk you're comfortable with, and how taxes work so your money can grow safely.

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