What is short term investments?
It’s a lock in period for your investment. Short term investment could be anything from seven days to 12 months. For some people 2-3 years is also considered as short-term investments. While, investments which have a lock-in period 5 years or above qualify as long-term investments.
Short-term investments generally have low yield as compared to long term investments. There are numerous investment options available for you to fetch good returns. Here is a look at some of them:
1. Fixed deposits or FDs at Banks
A bank FD is considered as one of the best short-term investments in India. Generally, FDs have a lock-in period from 7 days to up to 10 years. The duration of deposits varies from bank to bank.
The rate of interest that banks offer on FDs are aligned to the central bank’s repo rate. Senior citizens classify to earn an additional 0.5% on their deposits.
2. Company FD
Yes, not many of us are aware but unlike bank FD's, the company deposits do exist. They carry high risk because they are unsecured deposits. In case of a default, the depositors have the last right on the company's asset.
You earn up to 1-2% higher rate of interest as compared to bank FDs but that comes at a risk of losing the entire principal and not just the interest is high. This is even though deposits were certified with high ratings.
3. Post office time deposits
Post office time deposits have a lock-in period of 1, 2, 3 and 5 years with annual payments for earnings from them.
Premature withdrawals are not allowed before six months. However, you earn assured with sovereign guarantee on your deposit.
4. Recurring Deposits or RDs
Recurring Deposits goes well with people who wish to create a corpus but can only shell out a small amount every month. Unlike other investment option discussed above, you invest at a regular interval for a fixed period and up on maturity will receive a lump sum amount.
6. Mutual Funds
Mutual Funds are subject to market risk, read all documents before investing. For short term investments, companies broadly offer four types of Mutual Fund schemes, viz Liquid Funds, Ultra-short duration fund, Low duration fund, and Money Market fund.
As mentioned above, return on Mutual Funds are market linked, hence returns are not assured nor fixed.
Disclaimer: The article is intended for general information purpose only and should not be considered as investment, insurance, tax or legal advice, you are encouraged to separately obtain independent advice when making decisions in these areas