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Defining Short-Term Investments.

Short-term investments are designed to provide considerable returns in a fairly short span of time which can be a year or even a few months. These plans are more focused to meet the expected near future expenses.

Usually, investors who are more inclined towards short-term investment options are not really interested in waiting for years in order to get their money multiplied many times over. Instead, they look for quick and effective results. This is where short term investment plans come to their rescue.

With short-term investment plans, one can expect optimum returns to meet their financial objectives, but not massive results as in the case of long-term investments options. Owing to the lower risks associated with short term investment plans, they often rank high on the popularity charts of seasoned investors.'

Short-term investments can be described as temporary investments or marketable securities, which can be easily converted into cash, generally within 5 years. Short-term investments are highly liquid assets that are specifically designed to provide a safe and temporary place to park the excess cash.

Nobody can predict the future, but we can certainly be prepared to tackle it by planning our finances and saving on the right investment options in India. The COVID-19 pandemic has taught the valuable lesson of savings, as it can only help us overcome the uncertainty of life.

Best Lumpsum Investment Options for Short Term in India

Let’s take a look at the best short-term investment options to invest in India in 2022 and beyond.

Recurring Deposits (RD)

This is the most common short-term investment option used by many to park their money for short-term needs, securely as they are offered in all banks. It allows you to earn fixed interest on the amount invested till maturity. You can open a recurring deposit (RD) account just by logging into your net banking account.

The recurring deposit plans or Recurring Deposit Plan's process of making small monthly savings allow the user to build up an appealing sum at maturity. The Recurring Deposit interest rates are calculated on a quarterly compounded basis.

Debt Instruments

In India, debt instruments are safe short-term investment options especially for individuals unwilling to take risk. Securing capital and providing good results with no fear of market volatility, debt mutual funds are a good place to invest. Offering returns as high as up to 10.5%, this is a good choice for short tenure savings.

The tenure of short-term investment options with high returns debt funds is divided into 3 categories.

Liquid fund - Investment is made into money market and debt securities with the maturity of investment securities up to 91 days.

Ultra-short-duration fund - Money is invested in debt and money market instruments for the tenure of 3 months - 6 months.

Low duration fund - Money is invested in debt and money market instruments for the tenure of 6 months - 12 months.

Bank Fixed Deposits (FD)

Fixed deposit is a safe investment option that guarantees consistent interest rates, special interest rates for senior citizens, various interest payment options, and no market-related risks, with income tax deductions.

When you put your money to work in fixed deposits, you basically lock the amount for a fixed period of time. You can earn interest on the principal sum throughout the tenure on a cumulative basis. The interest earned gets added to the principal amount after every specific interval.

Since the tenures are flexible, you have the option to manage multiple FD accounts spread across different tenures. That way, you will be able to earn more on your investments.

Other than this, even NRIs (Non-resident Indians) can open FD accounts in India in the form of NRE (Non-resident External) and NRO (Non-resident Ordinary) FDs. Crucial features of FDs include being safer than other investment vehicles, let you earn interest over a fixed period of time, offer flexible tenures of up to 10 years, no cap on the maximum deposit and offer additional rates for senior citizens.

Post-Office Time Deposits

Post Office Time Deposit Account (POTD) offers no maximum limit on the investments. Also, the investments can be increased in the multiples of Rs 100.

This post office short-term investment option with high returns promises assured returns on the account holder’s investments. The time deposit accounts can be easily transferred from one post office to another and the accounts can be either solely operated or jointly held. Account holders can extend the duration of a time deposit account upon its maturity, and there is no cap on the number of time deposit accounts that can be opened. 

The central government has recently authorized all public sector banks and some private banks like ICICI Bank, Axis Bank, and HDFC Bank to allow investors to open POTD accounts. Investors may consider POTD investments as alternates to Bank Fixed Deposits for best lumpsum investment options for the short term.

Large Cap Mutual Funds

Large cap mutual funds are equity funds that invest primarily in the top 100 companies of India. These companies are some of the biggest brands in our country, and most Indians use their products daily.

If you are thinking about investing in mutual funds for the first time, large-cap funds can be a very good option. These funds have proved to be excellent wealth creators in the short as well as long term. The ‘cap’ in large-cap funds refers to market capitalization. Large-cap funds have been both steady and sustainable in terms of generating returns and have endeared themselves to investors.

There are a number of reasons why large-cap companies are picked up by mutual funds. They are believed to be more trustworthy, enjoy a strong reputation and are financially strong. They have been operating in the market for some time and they have a solid track record. Because of their size and organizational complexity, these companies follow strong corporate governance practices. Investors who put their money in such companies see a slow and gradual rise in their wealth over a period. There are plenty of research studies on these corporate organizations in the market.

Large-cap funds are ideal for people who are investing in mutual funds for the first time. Since 80% of the corpus of these funds is invested in large-sized companies.

Corporate Deposits

Company Fixed Deposit or corporate FD is a term deposit which is held over fixed period at fixed rates of interest. Company Fixed Deposits are offered by Financial and Non-Banking financial companies (NBFCs). The maturities of various company fixed deposits can range from a few months to a few years.

One of the biggest advantages of investing in corporate Fixed Deposits is, like bank Fixed Deposits they also provide the assurance of a guaranteed return.

Say, you have invested Rs 1 lakh in a corporate Fixed Deposits and the concerned NBFC/corporate promises you to pay a 7% interest per annum. Then, no matter how the markets move or how the interest rates fluctuate, at the end of the year, you will receive Rs 1.07 lakh as promised.

Plus, at the time of investment, you get to know the exact amount that you will receive at maturity. This one big advantage helps you make your future financial plans more confidently.

Like most bank deposits, most corporate Fixed Deposits offer a little higher interest rate for senior citizens. For senior citizens who are retired and depend on Fixed Deposit returns for income, this is an added advantage. Here are some options that you can take a look at.

Short-term investments are the best option to accomplish your short-term financial goals. With short-term investments, you can ensure financial freedom that will help manage unexpected expenses. In addition, it offers you the flexibility to withdraw money whenever required without waiting for a long time.

Moreover, you can make substantial profits within a short period as short-term investment plans provide stability, liquidity, and low transaction costs, thereby showing ways to avoid unwanted problems significantly. There are many long-term investments plans in India available for investments. You can choose one from them according to your future plans.

The list mentioned above should have given you an overview of the various short-term investment options in 2022 in India. So, whichever avenue you choose to park your hard-earned money, make sure to have a clear goal and stick to it till the end, to make the money work for you.

Happy Investing!

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