Top 5 Investment Options for Parking Money for Short-Term

Whenever we get some extra money like a bonus from our employer, a gift from parents or relatives, or any money from any other source, some of us plan to invest this amount rather than spending it on non-essentials or making an impulsive buying. However, it's important to make sure that you're investing it in the right place. Short-term investments can provide you with a way to earn some extra income while not demanding long-term commitment. But before we dive into the pool of best short-term investment options let's understand the theory that categorises investment options and terms them as; long and short.

What do exactly Long and Short-term Investments mean?

Some of you may be wondering what short and long-term investing exactly means. See the duration of long and short may be different for every individual. For example, as per one of the greatest investors, Waren Buffet even 10 years isn't long enough for value investing. While we get impatient even after a year of investing if we don't see good returns. Also, in general application, any money laid to earn some return in less than a year couldn't be even called investing technically, rather it's more like trading or scalping. Investing money for less than 5 is considered short-term investing and a period above this could be said as long-term. However, there isn't a fixed definition for this long and short-term investment theory. In this blog post, we will discuss some of the best options available for Indian investors to park their money for the short term.

Top 5 Short-Term Investment Options

1. Savings Account

A regular savings account is one of the most uncomplicated spaces where you could park your money for the short term. The return usually varies from 2% to 4% per annum depending on the bank, but the best thing about this investment is its liquidity nature. We all know that the amount available in this savings account could be used for payments through various modes like cheques, mobile banking, cash withdrawals from ATMs, debit cards and UPI. The only downside of this investment option is that most top-rated banks offer lower returns and your returns could not even save your money from inflation.

2. Fixed Deposits

Fixed deposits are another popular option for short-term investments. FDs offer a higher rate of interest than savings accounts, and the returns are guaranteed. The interest rates on FDs are fixed and range from 5% to 7%. However, the money you invest in FDs is locked-in for a specific period, which can range from one month to five years, depending on the bank. FDs are also quite liquid as they can be easily withdrawn from a bank branch on the same working day. If you have an online account, you can even liquidate your FD on bank holidays. Also, an FD with a lock-in period of 5 years is eligible for deduction under section 80C of the Income Tax Act.

Presently banks also offer auto sweep facilities that you can make use of.

Auto sweep is a feature that connects your savings account to a fixed deposit account. It helps you earn more on your extra or unused savings by transferring them into a fixed deposit account. When the savings account balance exceeds the limit, the extra amount is automatically transferred to the fixed deposit account. This helps you earn a higher interest rate on your idle money than in your savings account.

3. Short-Term Debt Funds

Short-term debt funds are a type of mutual fund that invests in debt instruments such as government securities, corporate bonds, and money market instruments. These funds typically have a maturity period of less than 3 years, making them an excellent choice for short-term investments. Short-term debt funds offer returns that are generally higher than those of savings accounts and fixed deposits, with relatively low risks.

In addition to these benefits, holding a short-term debt fund for over three years can provide tax benefits, making them a more advantageous option than traditional fixed deposits. Furthermore, these funds do not incur penalties upon redemption before maturity unless the withdrawal occurs before the predetermined period. In contrast, fixed deposits, despite their high liquidity, may incur a penalty if redeemed before their maturity date.

4. Liquid Funds

Liquid funds are a type of mutual fund that invests in short-term money markets instruments such as treasury bills, commercial paper, and certificates of deposit. These funds have a maturity period of less than 91 days, which makes them highly liquid and low-risk. The returns on these funds are generally higher than savings accounts and fixed deposits, and they are a good option for investors who want to earn a higher return on their money without taking on too much risk. Some mutual funds offer an ATM card facility that allows up to ₹50 thousand per day, per scheme withdrawal.

5. Post Office Savings Schemes

The post office offers a range of savings schemes that are ideal for short-term investments. These schemes include Post Office Savings Account, 5-Year Post Office Recurring Deposit Account, National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and many others. The interest rates on these schemes range from 4% to 8%, and the returns are guaranteed by the government.

The Post Office Saving Schemes offer a range of dependable investment options with no risk involved. These schemes are accessible through an extensive network of over 1.5 lakh post offices spread throughout the country. For instance, the PPF scheme is managed by the government and is available in 8200 public sector banks and post offices in every city. As these investments are guaranteed by the government, investors can expect assured returns.

Apart from providing a secure investment avenue, post office schemes can also help build an emergency fund and achieve financial goals. Additionally, these investments offer tax benefits of up to ₹1.5 lakhs under Section 80C of the Income Tax Act. To know more about post office schemes, Click Here.

Conclusion

Short-term investments do have the potential to provide decent returns. However, it's important to choose the right investment option that suits your financial goals and risk appetite. The above-mentioned investment options have been chosen by prioritizing their liquidity, short duration and low-risk nature.

So, consider your options carefully and make an informed decision based on your financial goals and risk appetite.

We also understand that decision of parking your money either for the short or long term might not appear practical to most of you by just reading a single blog. Hence to serve all your financial requirements we at Spring are running an online campaign where you can get to know how we can help you create a brighter financial future. And yes it’s absolutely FREE! Click Here- To avail of this service and Book a FREE call with our Advisor.