There is a better way to invest if you have extra money that you can’t put into long-term investments. Rather of sitting on your cash, you might invest it in short-term goals.
Short-term investments might last anywhere from three to five years. Short-term investments, for example, are beneficial if you’re saving for a car or a luxurious vacation. All you have to do is make sure the money can be turned into cash after a set length of time.
But what exactly are short-term investments?
There are two types of investment choices in India: short-term and long-term. Short-term investments might be undertaken for one or two years. It might be used to buy jewellery, a bike/car/laptop, arrange a vacation, or anything else you might need in the near future. There are various profitable one-year investment programs available that will help you generate rapid money. Long-term investments are those that last longer than five years. It also implies that you won’t need those dollars until you really need them. You may also think about reinvesting your short-term investment profits, which will help you save for the future.
Best Short-term Investment Options in India:
- Recurring Deposits (RD)
This is the most frequent short-term investment choice, available by all banks, and so many people use it to store their money for short-term purposes. It lets you receive a fixed rate of interest on your investment until it matures. Simply log into your net banking account to start a recurring deposit (RD) account, select the amount to save each month, the duration, and you’re done!
- Return on investment: 4% to 6% every year
- Time frame: 6 months to 10 years
After being added to your income, the interest received from your RD account is taxed according to your tax bracket.
- Fixed Deposits (FD)
Banks also provide Fixed Deposits (FDs), which are a popular strategy to build a corpus for short-term investing. The money is invested for a set length of time, usually 7 to 10 years, at a preset rate of return, after which it matures and may be withdrawn. Although the interest rates are greater than savings accounts and RDs, early withdrawal is not possible.
- Annual rate of return: 2.5 percent to 5.5 percent
- Timeframe: 7 days to 10 years
The interest on your FD is applied to your income and taxed according to your income tax bracket.
- Short-term Debt Mutual Funds
These mutual funds invest their money largely in debt securities such as government bonds, treasury bills, commercial papers, corporate bonds, and other money market instruments. For risk-averse investors seeking higher short-term returns, this is one of the greatest short-term investing possibilities.
- Return on investment: 8% to 11% every year
- Time frame: 6 months to 3 years
Short-term mutual funds are taxed if you redeem the units within three years, but long-term capital gains are taxed if you hold the units for longer than three years.
- Savings Account
In India, a savings account is one of the most popular short-term investing options. It’s a savings or checking account with a bank or financial organization where you may save money and earn interest. It offers maximum liquidity since consumers may withdraw their deposited funds at any time. Furthermore, there are no deposit limits, and numerous banks provide zero balance accounts.
- Return on investment: 3.5 percent to 7%, depending on the bank.
- Time limit: indefinite
Interest on a savings account is taxable income since it is considered an extra source of income.
- National Savings Certificate
The National Savings Certificate (NSC) is a short-term investment plan that saves you money on taxes and is accessible at post offices. It is a low-risk, fixed-return strategy since it is backed by the government. NSC interest rates, on the other hand, are subject to change on a regular basis, according on choices made by the Finance Ministry.
- Return on investment: 6.8%
- Time frame: 5 years
Investing in a 5-year NSC may qualify you for a tax break under Section 80C of the Income Tax Act, but interest income is taxable.