Five Short-Term Investment Options That Can Give You High Returns

Short term investments

With the rise in inflation, it is inevitable that investors need to re-look at their current investment options. The idea of beating inflation is usually the last thing while investing as we all choose options with an optimistic view of getting a handsome return on investments. To beat inflation, you should look at fixed deposits with high interest rates invested for shorter durations. Fixed deposits (FD) can be of immense help to safeguard your investments against inflation in the short-term.

There are mainly two types of investment timelines that are widely recognised in the financial market:

  1. Long-term investment – these are investments with a maturity timeline of more than one year. However, for the purpose of taxation, in case of many assets, the government describes long-term investments with an investment timeline of 3 years.
  2. Short-term investment – These are investments that have a maturity timeline of up to one year.

Making short term vs. long term investments

Most investors find it easier to invest in long-term investments. It is relatively easy to pick a well-performing fund or blue-chip stock and invest in it and sit back and relax. However, choosing short-term investments is challenging and has its share of misconceptions. It is difficult to understand the intricacies of investing in short-term investments. While investing in short-term investments, you need to be really practical about earning reasonable returns and should not expect a fortune of returns. Short term investments are a great way to meet your short-term financial goals. Here are some short-term investments that offer low-risk and high returns. 

  • Liquid Funds: Liquid funds are those mutual funds which invest in money market instruments like commercial papers, treasury bills, government securities and “call money”. These get liquidated in a maximum of 7 days and can be liquidated to receive ready cash. If interest rates are rising, these are a great way to earn more in the short-term.
  • Savings Account: A savings account is an interest-bearing deposit account held in a bank or other financial institution which provides a marginal interest rate. Investors with low-risk appetite, can opt for saving accounts. Though being safe and offering a fixed rate of return, savings account do not offer a good rate of return when compared with fixed deposits and recurring deposits.
  • Recurring Deposits: Investors usually opt for recurring deposit as a means to invest regularly. Recurring deposits require a fixed amount to be invested in a recurring manner every month throughout the tenor of the investment. RDs help develop a discipline to invest. However, the effective rate of return is lower than that of fixed deposits. Usually, RDs are offered with a lock-in period of 6 months to 1 year.
  • Large-cap Mutual Funds: These include investments in large-cap companies that can help you achieve substantial growth. These investments can yield good returns within a timeframe of 1 to 3 years. However, they are subject to market fluctuations.
  • Fixed Deposits: Fixed Deposits are one of the best risk-free investment instruments that offer a higher rate of returns as compared to other fixed-investment instruments.  Company FDs which are certified by ICRA and CRISIL offer a high level of safety and stability for your investments. You can create fixed deposits with short-term tenors in a laddering format – i.e., fixed deposits with maturity dates one after the other at a fixed interval. In a rising interest rate regime, you can beat inflation with such a strategy.

Though the market offers a number of instruments, yet nothing can ever beat the stability and safety provided by fixed deposits. Though interest earned on Fixed Deposits is taxable, you can easily apply for rebates (under specific conditions) to avoid Tax Deducted at Source.

Other investments might offer handsome returns, but they carry a high amount of risk too. You should compare investment instruments based on interest rates and other available features such as taxation, ease of investing, and benefits offered in the short-term. For short term investments, Non- Banking FInancial Company NBFCs offer cumulative and non-cumulative modes of fixed deposits with 8.75% of returns for regular depositors and 9.1% for senior citizens. These can be started with a minimum amount of Rs 25,000 with an extra add-on of 0.25% interest on every renewal. You can also avail a special 15-month tenor fixed deposit which offers 0.25% increased Return On Investment (ROI) than regular 12-month Fixed Deposit (FD). You can calculate your returns in advance using the online Fixed Deposit (FD) Calculator.

Author Bio :

Aman is working in the domain of Investment management in one of the top universities. He has published research papers and case studies in Investment and Fixed Deposit marketplace. He is an avid blogger in the domain of Investment management. you can also find him on social networking platforms.