17 Short-Term Investment Options

Short-term investments are financial assets that can be easily converted to cash within a short period, ranging from a few days to 3 years. Short-term investments are highly liquid assets specifically designed to provide a safe and temporary place to invest the excess cash. Some popular short-term investments include high-yield savings accounts, money market accounts, treasury bills, and government bonds, which are quality products with highly liquid assets.

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What are Short-Term Investments?

Best Short Term Investments

Short-term investments are financial assets or instruments that are acquired with the intention of holding them for a short period, usually ranging from a few days to a few years. These investments are described by their liquidity and low risk compared to long-term investments. Examples of short-term investments include savings accounts, bank fixed deposits, recurring deposits, etc. Short-term investments are preferred by investors who seek to preserve capital or earn medium returns over a short time horizon while maintaining the flexibility to access their funds quickly.

Best Short-Term Investment Options

Here are some top short-term investment options to help clear up any confusion about where to invest your money for the short term.

  1. Short-Term Investment Plans for 1 Month

    • Savings Accounts 

    • Liquid Funds 

  2. Short-Term Investment Plans for 3 Months

    • Recurring Deposit 

    • Bank Fixed Deposits 

    • Treasury Securities

    • Money Market Account

    • Stock Market/Derivatives

  3. Short-Term Investment Plans for 6 Months

    • Large-Cap Mutual Funds

    • Post-Office Time Deposits

    • Debt Instrument

    • Gold or Silver

    • Investments in NCDs/ Corporate or Company Deposits

    Short-Term Investment Options Average Returns (approx) 
    Savings Account  0.25% - 3.5%
    Liquid Funds 4% - 6.5%
    Recurring Deposits 4.5% - 7.0%
    Bank Fixed Deposits 4.5% - 7.5% (depending on tenure)
    Treasury Securities 4.0% - 7.0% (depending on maturity)
    Money Market Account 3.5% - 5.5%
    Stock Market /Derivatives Highly Variable (can be negative or very high)
    Large Cap Mutual Funds 8% - 12% (long-term)
    Post-Office Time Deposits 4.0% - 6.5%
    Debt Instrument 5% - 8% (depending on type and credit rating)
    Gold or Silver Volatile
    Investments in NCDs/ Corporate or Company Deposits 6% - 9% (higher risk than FDs)
    Arbitrage funds 6% - 10% p.a
    Equity Mutual Funds 7% - 15% p.a.
    Debt Mutual Funds 6% - 9% p.a.
    Fixed maturity plans 2.5% - 10% p.a.
    Short term funds 4% - 7% p.a.

Best Short-Term Investment Options for 1 Month

The best short-term investment plan for 1 month is: 

  1. Savings Account

    • Highly accessible and liquid: Easy to deposit and withdraw funds.

    • Low risk of losing principal: Your money is insured up to a certain limit.

    • Ideal for emergency funds or short-term goals: Easy access to funds for unexpected needs or upcoming expenses.

    • Offers minimal returns compared to other options: Low-interest rates.

  2. Liquid Funds

    • Highly Liquid: Easy to redeem your money quickly, usually within 1 business day.

    • Low Risk: Invest in safe, short-term debt instruments like treasury bills.

    • Beats Savings Accounts: Earn slightly higher returns compared to traditional savings accounts.

    • Flexible Investment: Invest lumpsum or start a Systematic Investment Plan (SIP).

  3. Equity Mutual Funds 

    Equity mutual funds invest primarily in stocks of various companies. They offer investors the potential for higher returns but also come with higher risk compared to other investment options.

    • Higher returns: Equity mutual funds can provide significant returns over the long term, especially if the market performs well.

    • Diversification: By investing in a mutual fund, investors can diversify their portfolio and reduce risk.

    • Professional management: Equity mutual funds are managed by professional fund managers who have expertise in selecting stocks.

    • Tax benefits: Long-term capital gains from equity mutual funds are generally taxed at a lower rate than short-term capital gains.

Best Short-Term Investment Options for 3 Months

The best short-term investment plan for 3 months is: 

  1. Recurring Deposits

    • Tenure: RD accounts can be opened for as little as 6 months and in multiples of 3 months up to 10 years.

    • Liquidity: RD schemes usually have a minimum lock-in period of one month. Premature closure within one-month results in only the principal repayment, with no interest.

    • Returns: RD offers interest rates similar to Bank FDs. Currently, for tenures of 12 months and above, the interest rate ranges from 3.25% to 7.50% per annum, calculated from the date of the first deposit. Use an FD calculator to analyze returns.

    • Taxation: Interest earned is added to one's income and taxed according to the income slab rate. TDS is deducted if the interest earned exceeds Rs. 10,000.

  2. Bank Fixed Deposits

    • Fixed deposits (FDs) are short-term investment savings instruments.

    • The lump-sum amount is deposited for a fixed period.

    • Considered one of the safest short-term investment options.

    • Offers fixed FD interest rates and guaranteed returns.

    • Tenure ranges from 7 days to 10 years, renewable on maturity.

    • Provides high liquidity and manages reinvestment risk.

    • Fixed interest rates, unaffected by market volatility.

    • Current interest rates typically range from 3% to 9%.

    • Subject to high-income tax rates of up to 30%.

    • Tax is applied to accrued interest; no tax deductions are offered.

  3. Treasury Securities

    Treasury securities or treasury bills are another good short-term investment plan offering high liquidity, safety, and satisfying returns. Their maturity dates vary from 91 days to 365 days.

  4. Money Market Account

    • They have a maturity limit of 91 days, no lock-in period, high liquidity, and low risk.

    • Liquid funds, also known as money market accounts, offer secure capital and attractive short-term returns.

    • Tenure: Less than 13 months.

    • Liquidity: Provides quick redemption.

    • Returns: Not guaranteed or fixed; currently offering around 3.35% per annum.

    • Investors should align their investment horizon with fund maturities for optimal results.

    • Taxation: Profits are added to individual income and taxed accordingly; profits on investments held over 36 months are taxed at 20% post-indexation.

  5. Stock Market /Derivatives

    Shares, commodities, and derivatives are a favorable avenue for people possessing good market knowledge and a high-risk appetite. This investment can be made for a short or long time span, depending upon the financial objectives of the investor.

  6. Debt Mutual Funds

    Debt Mutual Funds are open-ended funds that invest primarily in debt securities such as government bonds, corporate bonds, and money market instruments. They offer diversification and professional management, making them a popular choice for investors seeking to invest in debt instruments.

Best Short-Term Investment Options for 6 Months

The best short-term investment plan for 6 months is: 

  1. Large-Cap Mutual Funds

    Large-cap mutual funds focus on stocks of large business organizations for short-term growth.

    • Investment tenure can range from 1 to 3 years.

    • Tenure options from 3-5 years.

    • Offers high liquidity and potential for high returns.

    • Low risk associated with large-cap mutual funds.

    • Returns range from 8% to 13%.

    • Short-term capital gains tax (STCG) for holdings under 3 years, long-term capital gains tax for holdings over 3 years.

  2. Post-Office Time Deposits

    Post-office time deposits, also known as post office fixed deposits, are one of the safest and best short-term investment plans that offer assured returns to investors. The scheme is offered by India Post and is very popular in rural and remote areas of India.

    • Tenure- one can open a post office time deposit scheme for a tenure of 1 year, 2 years, 3 years or 5 years.

    • Liquidity- In a post office scheme, the interest applicable on the deposited amount is on a yearly basis. Before the completion of 6 months, the post office scheme does not allow any premature withdrawal.

    • Returns- Post office time deposit account offers the following post office FD return rate.

    Account Tenure Applicable Interest Rate
    1-year account 6.9%
    2-year account 7.0%
    3 years account 7.1%
    5 years account 7.5%

    Interest rates from 01.01.2024 to 31.03.2024

    Taxation- The interest earned on the deposited amount is added to the individual's income and is taxed according to the income tax slab rate the individual falls under.

  3. Debt Instrument

    Debt instruments are ideal short-term investments for risk-averse individuals. Debt mutual funds offer stability and good returns without market volatility.

    • Returns can be as high as 10.5%.

    • Tenure of debt funds:

      • Liquid fund: Maturity up to 91 days.

      • Ultra-short-duration fund: 3 to 6 months.

      • Low duration fund: 6 to 12 months.

    • Liquidity: High liquidity, maturity up to 91 days.

    • Returns: Offers 7-9% interest rate.

    • Taxation: Short-term capital gain tax for holdings less than 3 years, long-term capital gain tax for holdings over 3 years.

  4. Gold or Silver

    Gold and silver are just like the ever-growing trees of investment forest, handy for both long and short-term investments. These investment plans are sure to give huge returns as the price of gold and silver keeps increasing every day. So, if you are looking for secure and risk-free short-term investment plans and beyond, you’ll need to invest in gold or silver.

  5. Investments in NCDs/ Corporate or Company Deposits

    This scheme allows you to select a secured NCD (Non-Convertible Debentures) for securing your capital. In addition, it offers attractive interest rates varying from 9% to 12%.

  6. Arbitrage funds

    They are low-risk investment options that aim to profit from price discrepancies between the same security traded in different markets. These funds typically invest in pairs of related securities, such as stocks, bonds, or derivatives, and buy the cheaper one while simultaneously selling the more expensive one, hoping to capture the price difference when the prices converge.

    • Stable returns: These funds generally offer stable returns, making them suitable for investors seeking consistent income.

    • Tax-efficient: In India, arbitrage funds benefit from long-term capital gains tax treatment, which is generally lower than short-term capital gains tax.

  7. Fixed Maturity Plans (FMPs)

    FMPs are closed-ended funds that invest in debt securities with a specific maturity date. They offer a fixed return for the tenure of the plan, making them a popular choice for investors seeking predictability.

    • Fixed returns: Offer a predetermined rate of return.

    • Closed-ended: Have a fixed tenure and cannot be bought or sold after the initial offer period.

    • Lock-in period: Investors are typically locked in for the duration of the plan.

    • Credit risk: Exposure to credit risk of the underlying securities.

  8. Short-Term Funds

    Short-Term Funds invest in debt securities with a maturity of less than a year. They offer relatively stable returns and low risk, making them suitable for investors seeking a safe haven for their funds.

    • Low risk: Invest in short-term debt securities, reducing credit risk.

    • Stable returns: Offer relatively consistent returns.

    • Liquidity: Can be bought or sold on any trading day.

    • Limited return potential: Lower return potential compared to longer-term debt funds.

What are the Features and Benefits of the Best Short-Term Investment Options?

The features and benefits of the best short-term investment plans are:

Features:

  • Low risk: Prioritize capital preservation over high returns.

  • Liquidity: Easy access to your money when needed.

  • Flexibility: Diverse options to match your time horizon and goals.

Benefits:

  • Grow savings: Earn more than a regular savings account.

  • Emergency funds: Securely store cash for unexpected needs.

  • Meet short-term goals: Save for vacations, down payments, etc.

  1. Cash Investment

    This is a short-term bond, generally less than 90 days, offering returns in interest payments. As compared to the other investment options, cash investment generally offers a low return.

  2. Cash Equivalents

    These are investment securities which provide high liquidity and have high credit quality. As a short-term investment option, these securities have low-risk and low-return profiles.

  3. Money Market

    Money market is the segment of the financial market in which financial instruments which have a short-term maturity period and high liquidity are traded. Money-market funds are considered a very safe investment option. However, the returns are comparatively low compared to the other investment options.

  4. Financial Assets

    These are liquid assets, which derive profit from ownership claims or contractual rights. Stocks, cash, bonds, mutual funds, and bank deposits are some of the examples of financial assets.

  5. Short-term Investment Fund

    This is a conservative investment fund which offers low risk and high returns. Short-term investment funds are considered a liquid investment fund and a safe investment option to achieve short-term financial objectives.

How to Calculate Returns on Short-Term Investments?

Calculating returns on short-term investments can be simplified by using a SIP (Systematic Investment Plan) calculator. SIP calculator, which stands for Systematic Investment Plan calculator, is a financial tool used to estimate the potential returns on investments. It helps investors make informed decisions about their investment strategies and financial goals.

Wrapping it Up!

Now, you don't need to worry about issues like where and how much to invest. If you're looking to invest your money in short-term investment plans, then above mentioned investment options could be the best destinations for you to stop-think-invest.

Short Term Investments-FAQs

  • Which are the top short term investments funds to invest in 2024?

    Here are the best short term investments schemes to invest in 2024:

    Short-Term Investment Plans for 1 Month

    • Savings Accounts 

    • Liquid Funds 

    Short-Term Investment Plans for 3 Months

    • Recurring Deposit 

    • Bank Fixed Deposits 

    • Treasury Securities

    • Money Market Account

    • Stock Market /Derivatives

    Short-Term Investment Plans for 6 Months

    • Large-Cap Mutual Funds

    • Post-Office Time Deposits

    • Debt Instrument

    • Gold or Silver

    • Investments in NCDs/ Corporate or Company Deposits

  • How long is short term investment?

    The tenure of a short investment plan can range from a few days to 3 years.

  • What are the requirements for short-term investments?

    A short-term investment meets two main criteria: liquidity and a duration of less than 12 months. This includes bonds with specific maturity dates and marketable equity securities, easily traded like liquid funds. These investments are held for less than a year, offering flexibility and quick access to funds.

  • How Short-Term Investments work?

    Companies with robust cash flow maintain short-term investment accounts on their balance sheets. Such companies can invest surplus cash in bonds, stocks, or other securities like treasury bills to earn higher interest, akin to a savings account. The primary goal of short-term investment plans for both investors and companies is to safeguard capital while achieving attractive returns on investment.

  • Which investment gives highest return?

    Large cap mutual fund gives higher returns on investment.

  • Are Prepaid expenses a short term investment?

    Yes, prepaid expenses are short term investment because prepaid amount is used up or expires within 1 year of balance sheet date.

  • Which mutual fund is best for short term?

    Large cap mutual fund are the best short term investment option which gives higher returns on investment.

  • What is a short term investment example?

    A short term investment are investments made for a shorter duration of 5 year or less. The returns of short term investment can be easily liquidated to cash at the time of maturity. Some of the examples of short term investments are:
    • Savings Account
    • Recurring Deposit
    • Gold or Silver
    • Debt instrument
    • Stock Market/Derivatives
    • Large cap mutual fund
    • Treasury securities
    • Money market fund

  • What are cash and short term investments?

    Short term investment and cash are the sum of two balance sheet line items. Both are considered a liquid asset.

  • What is short term debt fund?

    Short term debt funds are also known as income fund in mutual fund scheme which has a maturity period of less than 3 years. These funds majorly invests in debt instruments like corporate bonds, government securities, etc. and is best suitable for individuals who wants to fulfill their short term investment goals.

  • What are the benefits of investing in short term investment?

    Some of the benefits of short term investment are:
    • Short duration of time
    • High flexibility
    • High liquidity
    • Transparency

  • Is a short term investment an asset?

    Yes, short term investment is an asset.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).

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