6 Short-Term Investment Options to Choose From

In these turbulent times of high inflation rates, rising commodity prices, increased the cost of living, upgrading of the standard of living, availability of funds is a must. The common man is perturbed with anxiety as to how to save substantial money for the uncertain future.

Saving money for the short-term requirements and long-term requirements are on a top priority of the people, Inflation beating financial instruments pave the way for a secured financial future.

Short-Term Investment Plans
Investment in short-term investment schemes is great for those people who have an appetite for low-risk investment taking with their valuable money. A short-term tenure of investment from 3 months to 3 years, easy liquidation of the sum invested, without any legal issues forms the basis for these investments.

People have been enticed and trapped by unscrupulous businessmen to financial schemes like chit funds, offering a staggering amount of returns on their investments. Due to continuous media coverage regarding these frauds and scams have been exposed.

The common man especially the lower income group and middle class have become wary of these fly by night operators. After hoodwinking the people with tall claims and amassing large wealth from the masses, they shut shop and escaped.

People with a large amount of money usually invest in long-term investment plans. They are fully aware of the volatility of the financial scenario. If you are a novice and not well versed in the money market scene, investing in the wrong financial portfolios may make you a pauper overnight.

Investing wisely in short term investments schemes will allow you to accumulate funds to meet your needs in these trying days of inflation.

1. Indian Banks in the Public sector and Private sector

Savings Bank Account

Public sector and private sector banks are the preferred destinations for investment for a large section of people. The savings bank account interest rates for investment are around 4% per annum in most of the banks, which may dampen your spirits.

Have you researched properly for banks who offer you more interest with the same guarantee and security of your funds? Yes, there are banks which are giving more returns on your investment, though there may be a few clauses for minimum account balance etc.

The Airtel Payment Bank provides a 7.25% interest rate which is quite attractive compared to the other banks and other investment options. Other private sector banks like Yes Bank, Kotak Mahindra and RBL banks are offering interest rates more than 5%.

These banks offer you state of the art banking facilities along with safety,security, and easy liquidity. Now it is possible to open a savings bank online in many banks. As these banks come under the purview of Reserve bank Of India, you rest assured your money is safe.

Bank Fixed Deposits

The salaried class and mid-level business class people have trusted the Indian Banks since independence. The trust in Public sector banks is more as compared to the private sector banks, although the efficiency at the private banks is better than Public banks which are government undertakings.

The banks offer fixed deposit schemes which have a tenure from minimum 7 days to a maximum of 10 years. Deposit plans vary from one bank to the other, providing the customer with a choice of a safe, assured returns on their investments.

The deposit interest rates are shrinking over the years as guided by the RBI repo rate. If you have deposited 10 lakhs in a bank for say 3 years at 7.5 % interest and the bank fails due to any reason. You are entitled to Rs 1 lakh as compensation only as per the DICGC rules, although this type of case is rare.

When the shortest term Fixed Deposit Matures, reinvest the amount for a longer time, continue this process till you are financially capable to create a large corpus of the fund. This fund may be used to fund your children’s education, the marriage of your children, buying a house etc.

As per your requirement, you may opt for monthly, quarterly, half yearly and yearly or cumulative options.

Flexible Fixed deposits options are available in certain banks. Since your savings bank account returns are low, you can enter into an option.

A minimum amount of money within the guidelines of the banking system remains in your savings account and any amount over and above it is transferred automatically to a Fixed deposit linked account. The interest you get here is of a dual nature(Savings+ FD).

The penalty for premature withdrawal of FD ’s is applicable in many banks. The prospectus should be read thoroughly before investing.

2. Liquid Mutual Funds
Short-term debt instruments which may be liquidated in a short duration of time are known as liquid mutual funds. You may earn 7 to 9 % interest if your money is invested for a tenure of as low as 90 days.

The money is invested in bank fixed deposits, treasury bills, debt securities, and government certificates. This investment option has no entry or exit load.

The net asset value is calculated for a year differentiating with other mutual funds, where the calculation is done based on the business days. The lock-in period clause is not applicable for this financial instrument; thus funds can be withdrawn with 24 hours on any business day. You can enter and exit at any given time.

In the debt fund category liquid mutual funds, have a low-interest rate. The financial companies prefer to invest in fixed income securities with short tenures.

The following liquid mutual fund companies are popular among short-term investors: -Taurus Liquid Fund, Aditya Birla SL liquid Fund, Reliance Liquid Fund, UTI Liquid Fund-Cash Plan, Axis Liquid Fund, Kotak Liquid Fund, L&T liquid fund, JM High liquidity Plan, India Bulls Liquid Fund, ICICI Pru Liquid Fund.

3. Term Debt Mutual Funds
Another instrument for short-term investment is Short Term Debt Mutual Funds, where your funds can be parked safely for 1 to 3 years (Macaulay's duration). The funds are allocated in corporate securities, short-term government securities, and money market instruments.

Returns are not guaranteed in this investment plan. If the duration of the plan is short, you are exposed to lesser risks, along with lesser interest rates changes. You may lose your money if you had invested in a risky long-term plan for a longer period.

The top 10 Short-Term Debt Mutual Funds you can invest in are: –

Baroda Pioneer STBF, Franklin(I) ST Income, India Bulls short-term fund, IDBI Short Term Bond, BNP Paribas short-term fund, HDFC short-term debt fund, BOI AXA short term Income, Edelweiss, DHFL Prameria short maturity, L&T short-term bond fund, Sundaram short-term debt fund.

4. Fixed Maturity Plans
Fixed Maturity Plans are close-ended debt funds. These are flexible, transparent with a definite maturity date (30 Days to 5 Years). This financial instrument is designed to ensure investors get a reasonably high rate of return, that is predictable, tax efficient, in the volatile investment market.

This plan has only dividend distribution tax and a high tax efficiency. It is most suitable for investors who are in the high-income tax bracket and paying 30% of their taxable income.

Fixed Maturity plans are not always available. When a new fund comes investors can put in their money within a specific timeline.

Fixed Maturity Plans are invested in debt instruments like a certificate of deposits, money market instruments, corporate bonds, commercial papers and selling of debt securities. Frequent buying and selling are not available.

fixed maturity Plans score over Fixed Deposit schemes for efficiency in taxation.

The top companies in the fixed maturity plans segment are:

Aditya Birla Sun Life Fixed Term Plan, HDFC Fixed Maturity Plan, Invesco India Fixed Maturity Plan, Kotak FMF series, Reliance Fixed Horizon Fund, UTI Fixed Term Income Funds.

5. Large Cap Mutual Funds
Large-cap Mutual funds are financial instruments which are invested in companies that have a large market capitalization. The financial product company chooses stocks from the largest 100 stocks, listed in the Indian market.

Larger stocks have low-risk value, whereas smaller stocks have a big growth potential, tagged with insecurity. Large Cap Mutual funds are an excellent choice for new entrants in the financial arena.

If you want to make a sizeable income without undertaking a large risk of financial instability, you can go in for moderate gains by investing in Large Cap Mutual funds.

The companies operating Large cap Mutual funds are- Axis Blue Chip fund, Edelweiss Large cap, UTI Mastershare Unit Scheme, Reliance Large Cap Fund, Invesco India large cap. DHFL Primerica large cap, ICICI blue-chip fund, Escorts Growth Plan, Kotak Blue Chip Fund, India Bulls Blue Chip Fund and HDFC top 100’s funds.

6. Treasury Bills
Short term investment in treasury bills is very safe. The central government borrows money from Individuals, Firms, Trusts, Institutes for a short term.

The treasury bills are auctioned by the central government at regular intervals for the public. The Treasury bills are issued on a discount to face value, while the holder gets the face value on maturity. The difference between the issue price and face value is the profit earned by the investor.

This enables the investors to park their short-term surplus funds while reducing their market risk.

There is no risk weightage associated with the treasury bills. These are issued by the government so the sovereign papers have no risk at all. Being a transparent investment with short-term liquidity between 91 days and 364 days. Treasury bills are very active in the secondary market ensuring a very saleable proposition.

Living in today's competitive environment and meeting the financial demands of yourself and family members, require meticulous planning of your finance. Investing regularly in short-term investment plans will make your vision possible.

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