Short Term Investment Plans

A purpose of short-term investment, for both companies and individual or institutional investors, is to protect capital while also earning a return comparable to a Treasury bill index fund or another similar benchmark.

A company must meet two basic criteria in order to define an investment as short-term. It must first be liquid, such as a stock traded often on a large market. Second, management must intend to sell the security in a short timespan, such as 12 months.

Common and preferred stock are examples of marketable equity securities. Corporate bonds, or bonds issued by another company, are marketable debt securities, but they must have short maturity dates and be actively traded to be considered liquid.

What Are The Advantages Of Short-Term Investments?

The following are the advantages of short-term investments-

1. Useful in an emergency: You can withdraw from short-term investments at any moment, which is extremely useful in an emergency. Many individuals believe that having cash on hand is the best approach in an emergency because it is easy. Cash, on the other hand, cannot provide you with interest. That is why it is always preferable to invest in the short term.

2. Visible Results: Returns on short-term investments are higher than those on long-term ones. Faster results imply more valued results. After only a few weeks or months of effort, you can start seeing returns.

3. Liquidity is available: When you invest money in the stock market with a short-term outlook, you have the benefit of being able to withdraw your funds at any time if you have an emergency. Most other types of investments may require a lock-in period or may not extend the benefits of returns if you remove your money before the maturity date.

4. Ability to Withdraw Money in the Case of a Loss: Many individuals believe that the best way to get good returns on stock market investments is to simply buy and hold. This is not always the case, though. These great investors have also made investments in a number of companies whose stock values have fallen, causing them to lose money. As a short-term investor, your strategy will protect you from such losses because you will be more adaptable and careful to avoid losing positions.

What Are The Best Short Term Investment Options In India?

Following are some short term investment options:

1. Savings Account: A savings account is one of the simplest and safest ways to access your money. The prime motive here is liquidity, rather than profit. Savings accounts generate a return of no more than 4% to 7%, according to banks.

2. Funds for the short term: Short-term funds invest in assets that are expected to mature in the next three years. These funds are more risky than ultra-short term and liquid funds since the securities have a longer maturity. The taxation system is the same as it is for any other debt fund. Banks provide a variety of deposit options, starting with a 7-day minimum. As a result, an investor wishing to park money for a week or less can choose a fixed deposit with a similar term.

3. Recurring Deposits (RDs): This is a type of secured investment that is suited for those who like to invest on a monthly basis rather than in a lump sum. You have the option of using a postal RD or a bank RD. Banks typically issue RDs for a minimum of 6 months to a maximum of 10 years. In addition, interest earned on an RD is taxable.

4. National Savings Certificates(NSC): You can also invest in a 5 year Postal NSC if you are certain that your goal will be met exactly 5 years from now. The interest will be taxable, but you can claim a tax deduction under Section 80C of the Income Tax Act.

5. Fixed maturity plans (FMPs): They have a minimum 3-year lock-in period and common reason to bank FDs. They are, however, more tax efficient and provide better returns than FDs.