Short Term Investment Plan: A Comprehensive Guide for 2023
In this article, we will be discussing the importance of having a short term investment plan, the benefits it can offer, the types of short term money investment available, and factors to consider when choosing one. We will also provide recommendations for the top short term investment plans with high returns in India for 2023, along with tips for building the best saving plans for short term.
It’s important to define your investment goals before you start investing. Short-term goals are those that can be achieved within a year or two, while long term goals may take several years to accomplish. Examples of short-term goals include saving for a vacation, down payment on a home, or emergency fund.
They are generally considered to be low-risk investments with low returns. However, short time investments can also offer high returns with relatively low risk if invested in the right place.
What are Short Term Investment Plans?
Short term investment plans aim for significant investment returns within a brief span, typically a few months to a year, addressing imminent expenses. Investors preferring short-term options seek quick, effective results rather than waiting for prolonged multiplication of their money. Short-term investment plans deliver optimal returns for financial goals, albeit not as massive as long-term options. Due to lower associated risks, these plans often top the popularity charts among seasoned investors.
Types of Short Term Investment Plan
Some of the most popular short term money investment options include:
- Savings accounts: Savings accounts are one of the most conservative short term money investment options available. They offer a low rate of return, but they are also very safe and liquid.
- Certificates of deposit (CDs): CDs are a type of savings account that pays a higher interest rate than a traditional savings account. However, CDs have a set term, and you will pay an early withdrawal penalty if you withdraw your money before the term is up.
- Money market accounts: Money market accounts are a type of savings account that invests in short-term debt securities, such as Treasury bills and commercial paper. Money market accounts typically offer a higher interest rate than a traditional savings account, but they may have some fees associated with them.
- Short-term bonds: Short-term bonds are a type of debt small investment plans that matures in less than five years. Short-term bonds offer a higher interest rate than a savings account, but they also carry more risk than a savings account.
- Treasury bills:Treasury bills are a type of short-term debt investment issued by the U.S. government. Treasury bills are considered to be very safe investments, and they offer a competitive interest rate.
| Types of Short Term Investments | Rate of Return | Holding Period |
|---|---|---|
| Savings Account | 2% to 7% p.a. | |
| Certificates of Deposit (CDs) | 6% – 12% p.a. | 1 to 3 years |
| Money Market Accounts | 0.01% and 4% p.a. | – |
| Short-term Bonds | 6-7% p.a. | Less than 1 year |
| Treasury Bills | 7.5% p.a. | 91 days to 364 days |
How do Safe Short Term Investment Plans Work?
Companies boasting robust cash flow strategically feature short-term investment accounts on their balance sheets. With a solid cash position, these firms can leverage surplus funds for investments in bonds, stocks, or other securities, such as treasury bills, aiming for higher interest akin to a savings account. The primary goal of short-term investment plans, whether for investors or companies, is to safeguard capital while securing favorable returns on investment.
Benefits of a Short Term Investment Plan
The best investment plans for Short term offer several benefits to investors, including:
- Flexibility: Short term investment decision funds offer more flexibility than long-term investments. You can choose to invest your money in different short term investment products options such as short-term funds, short-term savings plans, and short term investment funds.
- Risk Management: Short term investment plans are generally considered to be low-risk investments in India with lower volatility than long-term investments. Investing in a variety of short term investment fund can help diversify your portfolio and minimize risks.
- High Returns: Short investment plans can also possibly offer short term investments with high return investment in India with relatively low risk. For instance, investing in short-term funds can offer returns of up to 8-9% per annum.
- No long-term commitment: Short-term investment fund does not require a long-term commitment. Investment options such as fixed deposits and recurring deposits can be made for a short period, ranging from a few months to a few years. In contrast, long-term investments require a long-term commitment, which can be difficult to maintain if you have short-term financial goals.
- Helps beat inflation: Short-term investment plans with high returns in India can help beat inflation as the returns offered by these investment options are usually higher than the rate of inflation. Long-term investments may not offer this advantage, as the inflation rate can vary over several years, and the returns on these investments may not keep pace with inflation.
Advantages vs Disadvantages of Short Term Investment Plan
Let’s take a closer look at the advantages and disadvantages of the best saving plan for short-term investment:
Advantages of Short Term Investment Plans with High Returns:
- Lower risk: Short term savings plan are generally considered to be low-risk investments with lower volatility than long-term investments.
- High liquidity: Short term investment in stock market are highly liquid, which means you can easily sell them and get your money back.
- Quick returns: Small term investment plans with high returns offer quick returns and can help you achieve your short-term financial goals.
Disadvantages of Short term Investment Plans with High Returns:
- Market volatility: The stock market can be volatile, and short-term investments are more likely to be affected by market fluctuations than long-term investments.
- Inflation: Inflation can erode the value of your money over time.
Interest rate changes: Changes in interest rates can affect the value of your investments.
Advantages of Short Term Investments over Long Term Investment Plans in India
Short term and long-term investment plans with high returns have their own pros and cons but short term investment plans with high returns in India offer several advantages over long term investments, including:
| Criteria of Comparison | Short-Term Investments | Long-Term Investments |
| Time Horizon | Typically under 12 months | Beyond 12 months |
| Risk Tolerance | Generally lower risk | Tolerates higher risk for potential long-term gains |
| Return on Investment | Lower potential returns | Higher potential returns |
| Liquidity | High liquidity, easy to access funds | Lower liquidity, may require longer to convert to cash |
| Volatility Sensitivity | Less sensitive to market fluctuations | More susceptible to market volatility |
| Advantages of Short-Term Investments over Long-Term Investments | Quick access to funds, lower risk exposure, flexibility in responding to market changes | Avoids prolonged commitment, capital preservation, takes advantage of short-term market opportunities |
Requirements for Short Term Investments
Here are the two main requirements for short term investments:
- Liquidity: Opt for marketable equity securities, such as liquid funds, and bonds with specified maturities to ensure quick access to funds.
Short Duration: Limit investments to a maturity period of less than 12 months, emphasizing a short-term approach for better flexibility and responsiveness.
How to Build a Short Term Investment Plan?
Here are a few tips for building the best saving plan for short term:
- Set specific investment goals: What are you saving for? Once you know your goals, you can start to develop a plan to reach them.
- Diversify your investments: Don’t put all your eggs in one basket. By diversifying your investments, you can reduce your risk.
- Monitor and evaluate your investments regularly: The market is constantly changing, so it’s important to monitor your investments regularly and make adjustments as needed.
- Rebalance your portfolio as needed: As your financial situation changes, you may need to rebalance your portfolio. This means selling some of your investments and buying others to keep your risk tolerance and investment goals in line.
How to Identify Good Short Term Investment Opportunities?
Exploring Essential Criteria for Short-Term Investments:
- Alignment with Financial Goals: Prioritize researching to ensure your investment aligns with your financial objectives.
- Accessible Liquidity: Opt for investments with high liquidity and minimal penalties, providing easy access to your funds.
- Principal Security: Choose short-term options that guarantee the safety of your principal amount.
- Balancing Risk and Returns: Assess the risk-return profile; while equity-linked investments may yield higher returns, they also involve increased risk.
Factors to Consider When Choosing a Short Term Investment Plan
When choosing a short term top investment plan with high returns in India, it is important to consider your individual needs and goals. Some factors to consider include:
- Your risk tolerance: How much risk are you comfortable taking with your money? If you are risk-averse, you may want to choose a more conservative investment option, such as a savings account or a CD. If you are more comfortable with risk, you may want to consider investing in short term bonds or Treasury bills.
- Your time horizon: When do you need the money? If you need the money in the next few months, you will want to choose a very safe investment option, such as a savings account or a CD. If you have more time, you may be able to afford to take on more risk with your investments.
- Your investment goals: What are you saving for? If you are saving for a down payment on a house, you may want to choose an investment option that offers a higher interest rate, such as a CD or a short term bond. If you are saving for a child’s education, you may want to choose an investment option that is more stable, such as a savings account or a money market account.
Features of Short Term Investment Plans
Short term investment plans boasts some key features like:
- Flexible Maturity: Short term investment options with high returns lack a fixed maturity period, offering adaptability in financial planning.
- Freedom of Withdrawals: Investors enjoy the freedom of partial or full withdrawals without being tied down by lock-in constraints.
- Steady Returns: While returns may be lower, they are consistent, providing a reliable income stream in the short run.
- Minimal Risk: The best small investment plans come with very low risk, making them a secure choice for risk-averse individuals.
Top Short Term Investment Plans with Possibly Higher Returns for 2023
The following can be considered the best investment options for short term:
| Investment Plans | Yearly Returns |
|---|---|
| Recurring Deposits | 6-7% |
| Money Market Account | 5-9% |
| Debt Instrument | 7-11% |
| Bank Fixed Deposits | 5-8% |
| Post-office Time Deposits | 5.5% |
| Large Cap Mutual Funds | 8-13% |
| Corporate deposits | 7-8% |
Recurring Deposits
- Tenure: You may open an RD account for as little as 6 months, in multiples of 3 months up to 10 years.
- Liquidity: Typically, a recurring deposit has a minimum one-month lock-in period. Premature closure within one month results in the return of only the principal amount.
- Returns: Considered among the best short-term investment plans, RD interest rates (currently at 6.5% per annum for 12 months and above) are similar to Bank FDs.
- Taxation: Interest earned is added to income and taxed based on the individual’s slab rate. TDS is deducted if interest exceeds Rs.10,000.
Money Market Account
- Tenure: Open for fewer than 13 months.
- Liquidity: Offers high liquidity with no lock-in period, providing quick redemption.
- Returns: Returns are not guaranteed; currently offers 7% per annum. Align investment horizon with other securities for optimal results.
- Taxation: Profits added to income and taxed accordingly. Profits on investments held over 36 months are taxed at 20% post-indexation.
Debt Instrument
- Tenure: Divided into three categories: Liquid fund (up to 91 days), Ultra-short-duration fund (3-6 months), Low duration fund (6-12 months).
- Liquidity: Liquid debt funds provide high liquidity, with returns exceeding savings accounts.
- Returns: Offers low risk and regular returns (7-9% interest currently). Taxed based on capital gains, with different rates for short and long-term holdings.
Bank Fixed Deposits
- Tenure: Ranges from 7 days to 10 years; renewable on maturity.
- Liquidity: High liquidity with managed reinvestment risk.
- Returns: Fixed interest rates (8%-9% for over 1 year). Unaffected by market volatility.
- Taxation: High-income tax rate up to 30%, including accrued interest. No tax deduction.
Post-Office Time Deposits
- Tenure: Available for 1, 2, 3, or 5 years.
- Liquidity: No premature withdrawal before 6 months.
- Returns: Interest rates vary based on tenure (5.5%-6.7%).
- Taxation: Interest added to income and taxed according to the individual’s slab rate.
Large Cap Mutual Funds
- Tenure: Invest for 3-5 years.
- Liquidity: High liquidity with low risk and returns of 8%-13%.
- Taxation: Capital gains tax for short and long-term holdings of large cap mutual funds.
Gold or Silver
Ever-growing investments for both short and long terms.
Treasury Securities
Maturity dates range from 91 days to 365 days, offering high liquidity, safety, and satisfying returns.
Stock Market /Derivatives
Suitable for those with market knowledge and high-risk tolerance. Duration depends on financial objectives.
Investments in NCD’s/ Corporate or Company Deposits
Select secured NCDs with attractive interest rates (9% to 12%) for capital security.
To Wrap It Up…
In conclusion, short term investment plans with possibly high best returns in India can help you achieve your financial goals faster and more efficiently than traditional savings accounts. By understanding the types of short time investments available, the factors to consider when choosing one, and the potential risks and rewards, you can create a successful investment plan for 2023.smallcase too, can be an attractive investment opportunity for those who want to diversify their portfolios & yield significant returns. smallcase offers an excellent opportunity for portfolio investing!
FAQs
Here are the top short term investment plans that can have higher returns:
1. Liquid Funds
2. Fixed Deposits
3. Post Office Time Deposit
4. Recurring Deposits
5. Short-term debt funds
Here are some of the popular short term investment plans:
1. Savings accounts
2. Certificates of deposit (CDs)
3. Money market accounts
Engage in short-term investments ranging from less than a day to an extended period. Easily withdraw stock investments within the same day. Consider options like savings accounts, liquid mutual funds, and stocks for long-term commitments.
A short-term debt fund, also known as an income fund, invests in a variety of debt securities such as corporate and government bonds. This strategy, including a significant allocation to money market securities, enhances returns compared to money market funds while maintaining comparable safety levels.
Absolutely, every investment qualifies as an asset. The unique trait of short-term investments lies in their quick convertibility to cash.
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