Short term investments are also famous as marketable securities or temporary investments that give liquidity to an investment in a short span. These can be easily converted into cash, typically within a period of three to five years.
Many short-term investments can be sold or converted to cash within 3-12 months. They are highly useful to meet an expected expense, but in terms of returns, they are not as effective as long-term instruments.
Benefits of Short-Term Investment
- Short-term investing is flexible in nature as you do not need to wait for the security to mature to liquidate it. Whereas long-term investments can only provide you cash by selling them in the secondary market, and the investor earns lower profits on that.
- Short Term Investments allow you to make substantial profits in a short span.
- It involves less risk as money invested per transaction is relatively low.
Disadvantages of Short Term Investment
- Due to the large transaction volume accompanied by high brokerage commission fees, short-term investment, at times, becomes costly. Besides, short-term investing yields lower returns owing to taxes and inflation.
Possible Objectives For Short Term Investment-
- Funds For Higher Education Fees
- Buying A Vehicle
- Investing In A Tangible Asset
- Marriage Of Children
- Going For Vacation Abroad
The above-stated goals set the instances for why people look for short term investments. Even if people have ideal cash, they prefer putting that money into FDs, OR RDs, so that they can generate comparatively better interest on investments than savings accounts in banks.
Following Are The Best 5 Short-Term Investments:
1. Short Term Debt Mutual Funds
A short-term debt fund is a mutual fund scheme for investments that have a lock-up period of one to three years and can be extended up to four years as well. This investment is believed to offer stable returns and involves modest risks. Due to similar investment terms, short-term debt funds are usually compared to bank Fixed Deposits (FDs) of comparable tenures at the time of investment.
Over three years, however, a short-term debt fund outperforms an FD in terms of tax efficiency. Even though it is riskier than a savings account, experts typically prefer it above the latter in terms of liquidity, returns, and taxation. Investing in debt funds has yielded an annual return of more than 10%, compared to FDs, which have yielded a maximum of 7% in recent years.
Short-term funds, if redeemed before the maturity date do not face any penalty. But, they should be redeemed before the predetermined period. Usually, this term varies between five days to six months. Unless they are redeemed before the set time, short-term funds do not incur a penalty if they are redeemed before the maturity date. This period usually lasts anywhere from five to six months. FDs, on the other hand, notwithstanding their high liquidity, have a penalty of up to 1% if redeemed before the maturity date.
High duration scrips, which were formerly the standard for short-term debt funds, are now prohibited under new mutual fund industry guidelines. Limiting the lifespan of scrips to one to three years has reduced volatility and protected the market from unnecessary risks. Short-term debt funds’ interest rates have buffered the risk of high rates, though some of them can be vulnerable to credit risks.
2. Overnight Fund
This sub-category of debt mutual funds can be considered for very short-term horizons, such as a day, a week, a fortnight, or a month. An Overnight Fund is required by SEBI categorization criteria to invest in overnight securities with a one-day maturity. Treasury bills (T-Bills), Tri-Party Repos (TREPS), Reverse Repos, and other money market instruments are examples.
An Overnight Fund offers a low-risk, low-return investing opportunity.
3. Liquid Fund
A liquid fund is a type of debt fund that invests in short-term fixed-interest generating money market instruments, usually with a maturity period of up to 91 days.
Such funds are famous for their low-risk profile and are positioned at the low end of the risk-return spectrum when compared to other debt mutual funds. If you are looking for an investment involving low risk, then choose safety and liquidity above rewards. If you want returns in a quarter or less than that; an investing time horizon of one to three months, or a little longer, then Liquid Fund is right for you. These include money market instruments like– Certificate of Deposits (CDs), Commercial Papers, Term Deposits, Call Money, T-Bills amongst others.
4) Recurring Deposit
A Recurring Deposit is a kind of term deposit offered by Indian banks. It allows investors to make regular deposits and earn adequate returns on the investment. Because of factors like – regular deposit and interest over and above, the investment provides flexibility and ease to individuals.
However, it should be noted that recurring deposits and fixed deposits are not the same. RDs offer more flexibility. An RD account holder has an option to invest a fixed amount each month while earning a considerable amount on that. RDs is a perfect marriage of savings and investment.
Most Indian banks provide RDs with terms ranging from six months to ten years, with terms suited to the needs of the consumers. However, once the interest rate is set, it cannot be modified throughout the term; and at the end of the period, the individual will be paid a lump sum payment that includes both the regular investments and the interest gained.
5) Stock Market
The stock market can be the next apt option for short term investment. Right stocks can make you book profits in a shorter term, given you are tracking all the updates about the company you are thinking of buying the stock of. Also, an investor must closely observe the technicals as well. All you need to do is spot the right stocks, and invest in them for a shorter duration to double your investment. There is a huge chance that you lose all of your capital in case you choose the wrong.
Some Stocks That Made Headlines In This Week-
1. Zee Entertainment
Zee Entertainment, headquartered in Mumbai, is an Indian media company that invests and operates across OTT, TV shows, News Channels, Music and Movies. The stock in the last week was in headlines because of its merger with the Indian hand of Japanese Company- Sony.
Also Read: Sony Picture Buys Majority Stake In Zee Entertainment
The stock is currently trading at above Rs 315 with a 52-week high of Rs 362.90 on NSE.
In one week, the stock has given 24.84% returns and in one month, it has yielded 87.42% returns.
2. ICICI Bank
ICICI Bank Ltd. is an Indian private bank that provides services like– retail banking, corporate banking, and treasury operations.
The stock is currently trading at above Rs 315 with a 52-week high of Rs 362.90 on NSE. In one week, the stock has given0.39% returns and in one month, it has given 4.62% of the profit. In a year, it has yielded 107.36% returns.
3. Asian Paint
Asian Paints Ltd. is a paints and coating products manufacturer. In one week, the stock has given 4.41% returns and in one month, it has given 13.51% of the profit. In a year, it has yielded 79.09% returns.
Disclaimer: Kindly read all the terms and conditions before investing. The article simply aims to provide an overview of investment options.