As the Indian economy continues to grow, investors are constantly on the lookout for opportunities to maximise their returns in a short period of time. Short-term investments certainly provide a lucrative way to earn profits while minimising risks, especially for those who are looking for flexibility and quick liquidity. With so many options available, though, it can be overwhelming to choose the right investment plan.
In this article, we will explore the top short-term investment options in India that offer high returns, low risks, and easy accessibility. Whether you are a beginner or an experienced investor, these options will help you make the most of your money in the shortest possible time.
Any investment that is made for less than 5 years is generally considered a short-term investment. These investments, ideal to achieve immediate or near-future goals, are meant for individuals who are inclined towards short-term investments and do not want to multiply the money many times over. With short-term investment options, you can enjoy investment at a lower risk.
Best Short-term Investment Options in India
Discussed below are the best short-term investment options in India -
Recurring Deposit Account
These are conventional yet secure investment options in the country. When you open a recurring deposit (RD) account, one of the best short-term investments in India, you invest small amounts to create a large corpus in a short time span. The tenure for an RD account can be anywhere from 3 months to 10 years.
This short-term investment option in India comes with a minimum lock-in period of 1 month. So if you end up closing the deposit account within 1 month, you will only receive the principal amount.
The interest rate applied to the RD account is the same as bank FDs. For a tenure of more than 12 months, the interest rate applied is generally 6.5% per annum. Keep in mind that the interest rate is applied from the date of the first deposit.
The following are the features of a Recurring Deposit Account -
- Fixed Income Investments - This short-term investment in India is a fixed-income investment and offers assured returns on the maturity of the deposit. The interest rate is pre-determined and remains constant throughout the tenure.
- Flexible Tenure - You can open an RD for a minimum tenure of 6 months and up to 10 years. It gives you the flexibility to select the time at your convenience.
- Lock-in Period - Usually, there is a lock-in period of 30 days to 3 months based on the bank’s discretion and policies. If you withdraw money during this period, you will not receive any interest.
- Loan Facility - You have the right to avail of loan or overdraft facilities against your RD. The default payments on the loan are adjusted against the funds present in the RD account.
- Minimum Investment - You need to make a minimum investment of INR 100 per month to open an RD account.
- High Interest Rate - The interest rate offered with an RD account is higher than the regular savings account. Most financial institutions compound the interest quarterly.
Bank Fixed Deposits
Fixed deposits are considered one of the best short-term investment options in India where you invest a lump sum amount for fixed tenure. The tenure for FDs can range from 7 days, 14 days, and 45 days to up to 10 years. You can review the deposit upon maturity and reinvest it if required.
The fixed deposit account offers a fixed rate of interest on investment, with the returns being assured at the end of the fund tenure. Currently, the interest rate offered is between 8% and 9% for more than 1 year of investment.
Here are the benefits of fixed deposits -
- Assured Returns - A bank FD assures fixed returns at the time of investing, irrespective of how the interest rate moves or the economy performs.
- Faster Growth with Compound Interest - With the power of compounding, you can earn interest on the interest amount, which helps you in building a corpus.
- Assured Benefit at the Time of Maturity - Once your fixed deposit account matures, you get the principal amount along with the accumulated interest.
- Higher Interest Rates for Senior Citizens - A fixed deposit account allows you to live your post-retirement life financially stress-free. As a senior citizen, you can earn more for your life’s savings and lead a financially independent life.
Money Market Fund
Money Market Funds are among the best short-term investments in India. These funds facilitate investments in various money market instruments and work to maintain high levels of liquidity, all while providing strong returns for a period of up to one year. A money market fund typically matures after one year.
Cash and assets with a cash equivalent are traded on the money market, which is an exchange. The maturities of the securities traded on the money markets range from instant to one year.
Here are some essential financial instruments used in India -
- Treasury Bills - Treasury bills are issued by the Indian government to raise money for a maximum of 365 days and are considered a safe investment because the government issues them. Less risk, however, also equates to lesser rewards, which is also true for treasury notes. T-bill returns are lower than those on other money market securities.
- Certificate of Deposit - A Certificate of Deposit (CD) is a type of term deposit offered by listed commercial banks that do not allow for early redemption. CDs and FDs are fundamentally different from one another as CDs are subject to negotiation.
- Commercial Paper - Commercial papers, which are unsecured, short-term promissory notes, can be issued by businesses and banks with strong credit ratings. These papers enable organisations to spread out the sources of their short-term borrowing. CPs are usually distributed at a discounted price and are redeemed at their face value. The difference is paid to the investor.
- Repurchase Agreements or Repos - In order to facilitate short-term lending, a bank and the RBI enter into a buyback agreement regarding securities. Additionally, it can be done between two banks.
Listed below are the main benefits of this best short-term investment option in India:
- Perfect for investments with a time span of a minimum of 3-6 months
- Investing for at least six months has little risk of losing money.
- These programmes typically offer higher returns than bank fixed deposits with comparable terms.
National Savings Certificates
The National Savings Certificate (NSC), a project of the Government of India, is a fixed-income investment programme that is easily accessible at any post office. This is a government-sponsored project that encourages subscribers — mostly low to middle-income investors — to invest while also saving money on taxes.
Similar to several other fixed-income products, such as Public Provident Fund (PPF) and Post Office FDs, the NSC offers guaranteed interest and whole capital protection. However, unlike tax-saving Mutual Funds and National Pension Systems, they are unable to provide returns that outpace inflation.
Given below are the major features of this short-term investment in India -
- Interest Rates - The government revises the annual fixed interest rate on the certificates every three months, ensuring uninterrupted revenue for the investor.
- Maturity Period - NSC VIII Issue certificates had a five-year tenure under the plan, while NSC IX Issue certificates had a ten-year term. Only the first issue is accessible for a subscription as the latter one was stopped in December 2015.
- Investment Flexibility - There is no upper limit on the initial investment you may make, which can be as little as INR 100.
- Easy to Access - It can be simply purchased at any post office upon presentation of the necessary KYC documentation. Additionally, it is easy to transfer the document from one PO to another and also from a single individual to another without having an effect on the original certificate's interest accrual or maturity.
- Power of Compounding - Interest is accrued, compounded every year, and by default reinvested; it is only due at maturity.
- Premature Withdrawal - In general, the only circumstances under which one may leave the programme early are the investor's demise, a judicial order, or a pledgee's forfeiture who is a Gazetted Government Officer.
- Loan Collaterals - NSC certificates are recognised by banks and NBFCs as security or collateral for secured loans. In this scenario, a transfer stamp is applied to the certificate and sent to the bank during loan disbursement.
- Nomination - Any family member, including a juvenile, may be nominated by the investor to receive the inheritance in case of the investor's death.
A bank or any other financial institution that holds interest-bearing savings accounts is referred to as a savings account. Although these accounts often offer a modest amount of interest, their consistency and dependability make them a fantastic option for storing cash that is also accessible for urgent needs.
Although there are some limitations on the frequency with respect to the withdrawal of funds from savings plans, these accounts typically provide excellent flexibility that is ideal for setting up an emergency fund, saving for a near-term goal (such as a car purchase or vacation), or simply sweeping the extra money in your bank account so that it can earn more interest elsewhere.
Here are some reasons to open a savings account -
- Ensures Safety - The most secure way to save money is in a savings account. The cash can be maintained in the bank as opposed to being carried around in large amounts or stacked at home. Cash that is on hand or at home can be easily lost. Similarly, cash might vanish from the home or burn to a crisp in a fire. However, the government protects it when it is kept at a financial institution so that it can be reclaimed in case of an unfortunate event.
- Helps in Attaining Personal Financial Objectives - When one has cash on hand, it is quite easy to spend money on items not included in the budget. This can be easily avoided with a savings account, as people can save money in a savings account to assist them reach their financial objectives. Additionally, banks support their clients in carrying out their daily tasks effectively.
Banks also make it simple for users to access their money. All that you need to do to access money is go to the bank and withdraw money or transfer money from your savings account to a checking account at the bank. While fund transfers are subject to limitations, cash withdrawals from the ATM or over the counter are unlimited.
The Government of India issues Treasury Bills, which are money-market instruments that come in the form of promissory notes that are guaranteed to be repaid at a later time. The funds generated using such measures are often employed to finance the government's immediate requirements, hence lowering the overall fiscal deficit of the nation.
With a duration of up to 364 days and 0% interest, they are typically short-term debt instruments. They are distributed at a lower price than the G-sec's advertised nominal value.
The following are the features of treasury bills -
- Minimum Investment Required - According to the RBI's rules and regulations, an individual must invest a minimum of INR 25,000 in order to purchase a short-term treasury bill. Any additional investment above INR 25,000 must be made in multiples of that amount.
- Zero-Coupon Securities - Treasury bills offer no interest on the total amount deposited. Instead, as these assets are offered for sale in the market at a discount, investors stand to gain capital from such purchases. Investors receive all of the par value of the bond upon redemption, enabling them to realise large returns on their initial capital.
- Trading - The investment strategy is a crucial component of the key treasury bill information. Depending on the total bids submitted on the major stock exchanges, the RBI auctions such securities in the market every week (on Wednesday) on behalf of the federal government. Investors have the option of purchasing such government assets from commercial banks that participate in depository operations or from other authorised primary dealers (PDs).
Check out the key benefits of this best investment for the short term below -
- Risk-Free - Treasury bills are among the most well-liked short-term government programmes offered by the RBI and backed by the federal government. Such equipment is a liability for the Indian government because it must be paid back by the deadline. As a result, people have complete security over their entire investment because it is supported by the highest authority in the nation and must be paid even during a recession.
- Non-Competitive Bidding - The RBI conducts non-competitive auctions of Treasury Bills every week, allowing individual and amateur investors to participate in these bids without having to specify the rate of return or price. It exposes more novice investors to the market for government securities, resulting in larger cash flows to the equity market.
- Liquidity - As previously mentioned, a government treasury bill, which has the longest maturity time of 364 days, is released as a short-term financing instrument for the government. People have the option to deposit their money in such assets if they wish to make short-term gains through safe investments. Additionally, as these government assets can be traded in the resale market, owners can turn their holdings into cash in times of need.
Debt Mutual Funds
Debt funds invest in a variety of money market instruments such as treasury bills (T-bills), corporate bonds, commercial papers (CP), and government securities, all of which produce fixed income.
The phrase "fixed-income securities" refers to all of these short-term investment options in India that have a predetermined maturity date along with the rate of interest that the investor can earn on maturity. As the returns are generally unaffected by market movements, debt securities are viewed as low-risk investment options.
Have a look at the top benefits of these best short-term investment plans in India -
- Liquidity - Debt funds, in contrast to conventional routes, do not have an initial lock-in period and may be redeemed whenever desired, subject to appropriate exit loads. Debt money is regarded as liquid since it can be accessed at any time during business hours. A few debt funds also allow investors to quickly redeem up to INR 50,000 per day per plan (per investor) from their accounts.
- Stability - Debt funds can give an investor's portfolio stability as they are often more predictable than equity funds. This can decrease the total risk and diversify your investment portfolio.
- Offers Better Returns on Investment than Traditional Investment Revenues - Debt fund investments may offer higher returns than more conventional investing options. By selecting the appropriate fund that matches one’s level of risk tolerance and investment timeline, an investor can also benefit from shifting interest rates and create income.
Post Office Time Deposits
One of Indian Post's most well-known investing programmes is the Post Office Time Deposit Account. While the programme is accessible to everyone, it is especially well-liked among rural and isolated parts of the nation where there are few banks and few investment options.
The salient features of Post Office Time Deposits are as follows -
- A single deposit may only be placed in a single account under the post office time deposit systems, which allow for tenures of 1, 2, 3, or 5 years.
- On the investments made by account holders, this post office scheme guarantees returns.
- The time deposit accounts are easily transferable across post offices.
- Time deposit accounts can be jointly held or unilaterally administered.
- After a time deposit account matures, users can extend the account's term.
- If a mature account's funds are not withdrawn, it will automatically be renewed for the initial deposit term at the applicable interest rates in effect as of the maturity date.
- There is no restriction on the number of time deposit accounts can be opened.
- The Post Office Time Deposit programme requires a minimum investment of INR 200. However, it should be emphasised that only deposits in multiples of 200 are acceptable. If not, the balance will be repaid without any interest and the amount in multiples of 200 will be kept in the account.
- Post Office Time Deposits are an option for investors instead of bank fixed deposits.
Stock Market or Derivatives
Derivatives refer to financial agreements between two or more parties that draw their worth from a base asset, such as commodities, currencies, stocks, and so forth. The value of the derivative is determined by changes in the price or value of the underlying assets. These short-term investments in India can be used to hold onto holdings, predict the direction of an underlying asset's movement, or hedge a position.
Trading in derivatives takes place over the counter or on an exchange. Notably, trading that takes place over the counter involves two distinct entities and is not overseen by a centralised body. The contract is also subject to counterparty risk as it was agreed to by two private parties. The possibility or risk of one of the parties falling behind on the derivative agreement is the subject of this risk.
Here are some advantages that you can enjoy with these short-term investment options in India -
- The best approach to safeguard oneself against a disastrous investment is with a derivative contract. When you trade derivatives on a stock exchange, you are essentially betting money on whether the price of a certain stock will go up or down. As a result, you may get into a derivative contract if you know that the value of the equities you have invested in is starting to decline and you correctly predicted doing so. This way, you can insure your stock against losses in the market as the stock price starts to decline and make a profit from your derivatives contract.
- A commodity or asset is bought at an affordable price in one market, and sold at a much greater price in another market - this process is known as arbitrage trading. Trading derivatives provides a benefit for arbitrage trading as you can take advantage of the price variations in several markets.
- You can avoid being exposed to the instability of other asset types by investing in derivatives. For instance, you may purchase stocks on the stock exchange before engaging in a derivatives transaction involving the same actual asset. This can protect the stability of your portfolio as you can use any of the investments to offset one loss with another.
- Although the majority of traders enter the derivatives market in order to speculate and make money, it is also a good place to put any extra money you may have. In this case, without affecting any of your current, underlying securities, your funds will continue to make a profit.