Top Short Term Investment Options

Only 64% of people worldwide understand how to manage their wealth. This knowledge gap often leads to many misconceptions about investment.

One such misconception is that “investing” means locking away money indefinitely. But that’s not always true. 

Enter short-term investment options!

Perfect for growing surplus cash without daunting lock-ins, they become financial stepping stones without long commitments. That said, with so many different options available in the market, it can get overwhelming to choose the right one.

This article lists the top nine short-term investment options and provides some key tips for seamlessly selecting the best options.

A Quick Recap of Short-Term Investments

Short-term investments are like the “grab-and-go” of the financial world—quick, easy, and flexible. They are financial instruments with a maturity period of less than three years. The goal of short-term investments is to generate returns while preserving capital.

Unlike long-term investments, which focus on growth over decades, short-term investment plans aim to keep money preserved and accessible. One key advantage of short-term investments is that most can be executed by the investor and have minimal requirements for outsourcing.

Think of them as parking spots for money that will earn interest while you decide on a bigger purchase or a long-term investment.

What to Look for in a Short-Term Investment Option?

Before opting for the best investment plans, here are a few key elements to look for in every short-term investment plan for convenience:

1. Flexibility

Individuals should have short-term investment plans that offer flexible withdrawal terms and minimal lock-in periods.

2. Liquidity

Liquidity ensures that an investment can be converted into cash without impacting its value. One must opt for options highly demanded in the market or easily traded.

3. Tax Efficiency

Some short-term investment plans offer tax benefits, while others might be subject to higher tax rates. Therefore, investors must choose instruments that align with their tax planning goals.

4. Returns Performance

This factor is quite like research for every purchase. Individuals need to review how the option and company have performed. Additionally, they must confirm the interest levels that each financial institution offers.

5. Risk

Every investment comes with some level of risk. Ideally, a short-term investment option should offer lower risks for the same range of returns.

Investors should remember that choosing the right blend of these elements revolves around the right blend. It’s about finding the sweet spot between earning decent returns and keeping your money safe and accessible.

Top 9 Short-Term Investment Options 

Now that the key elements are clear, here are nine short-term investment options, ranging from those ideal for just a few days to others suited for months or even years:

1. ETF Liquid Bees

ETF Liquid Bees is an Exchange Traded Fund (ETF) that invests in short-term government securities and debt instruments. It aims to provide high liquidity and stable returns, making it suitable for parking funds for a very short duration. Think of it as a basket of very safe and liquid securities that you can buy and sell on the stock exchange.

• Ideal tenure: Days (starts from as short as 1-3 days)
• Risk profile: Very low
• Liquidity: Very high (can be bought and sold on the stock exchange)
• Ideal for: Investors looking for a highly liquid and safe option to park their funds for a very short duration (even a few days)
• Top benefits:
  • High liquidity, allowing you to buy and sell units easily on the stock exchange
  • Relatively stable returns, suitable for risk-averse investors
  • No exit load or penalties for early withdrawal
• What to consider:
  • Returns can be lower than other debt funds
  • Not suitable for long-term investments

2. Liquid Funds

Liquid funds are mutual funds that invest in debt instruments that mature within 91 days. They aim for high liquidity and stability while offering higher returns than savings accounts. They are like a pool of money invested in very short-term and safe debt securities. This makes them highly liquid, meaning you can easily get your money back when needed.

• Ideal tenure: Days (starts from as short as 1-3 days)
• Risk profile: Low
• Liquidity: Very high
• Ideal for: Investors seeking a safe, liquid parking space for their surplus funds with the potential for slightly higher returns than a savings account
• Top benefits:
  • Easy access to funds, allowing quick withdrawals when needed
  • Relatively stable returns, suitable for risk-averse investors
• What to consider:
  • Returns can fluctuate slightly depending on market conditions
  • May not be suitable for long-term investments as the returns may not keep up with inflation
  • Liquid Funds have a graded exit load of up to six days and no exit load from the 7th day

3. Treasury Bills (T-Bills)

Treasury bills are short-term debt instruments issued by the government without interest. When the government needs to collect funds to manage its deficits and debts, it offers treasury bills at discounted prices. As the government backs these short-term investment options, they are virtually risk-free. 

• Ideal tenure: Weeks (Maturities range from weeks to several months)
• Risk profile: Virtually zero
• Liquidity: High
• Ideal for: Investors seeking the highest level of safety and capital preservation
• Top benefits:
  • Backed by the government, ensuring minimal risk of default
  • Provides a safe and liquid option for parking short-term funds
• What to consider:
  • Very low returns for a debt instrument
  • Sold at a discount and redeemed at face value and thus requires careful calculation to understand returns

4. Debt Funds

Debt funds invest in various fixed-income securities, offering a balance of stability and potential for higher returns than traditional fixed deposits. They are divided into multiple categories to cater to different risk appetites. Think of them as a basket of different types of loans (bonds) that the fund manager carefully selects to generate returns.

• Ideal tenure: Weeks (Maturities range from weeks to several months)
• Risk profile: Varies depending on the type of debt fund
• Liquidity: Moderate to high; can usually be redeemed within a few business days
• Ideal for: Investors seeking regular income and capital preservation with moderate risk tolerance
• Top benefits:
  • Potential for higher returns than traditional fixed-income options
  • Diversification across different debt instruments can help reduce risk by spreading investments across various assets
  • Different categories cater to varying risk appetites and investment horizons
• What to consider:
  • Returns are not guaranteed and may fluctuate based on market conditions
  • Credit risk and interest rate risk are factors to consider
  • May not be suitable for investors seeking high-growth potential

5. Fixed Deposits (FDs)

Fixed Deposits are like financial time capsules. A lump sum of money is locked away with a financial institution (mostly a bank) for a specific period. In return, a predetermined interest rate is assigned. This provides stable returns and peace of mind.

• Ideal tenure: Months (starts from 1 month)
• Risk profile:Very low
• Liquidity: Low
• Ideal for: Investors who prefer safer returns
• Top benefits:
  • Offers clear returns
  • Comes in a wide range of tenures
  • Easy to understand and open, making it suitable for all investors
• What to consider:
  • Lower returns compared to market-linked options
  • Interest income is taxable, impacting net returns
  • Premature withdrawals often result in penalties

6. Recurring Deposits (RDs)

Unlike FDs, RDs are like disciplined savings plans. They are involved in committing to depositing a fixed amount regularly in exchange for a fixed return. Over time, the savings accumulate, and interest is earned along the way.

• Ideal tenure: Months (starts from 6 months)
• Risk profile: Very low
• Liquidity: Moderate
• Ideal for: Individuals who prefer a structured savings approach with fixed returns
• Top benefits:
  • Encourages regular savings habit
  • Relatively easy to understand and manage
• What to consider:
  • Lower returns similar to FDs
  • Premature withdrawals may result in penalties

7. Non-Convertible Debentures (NCDs)

NCDs are a form of debt security issued by companies to raise funds. They offer a fixed interest rate and a specific maturity date. Investors receive regular interest payments until the bond matures, at which point they receive the principal back.

However, the risks of NCDs depend on the company’s financial health. It’s like lending money to a company in exchange for regular interest payments.

• Ideal tenure: Years (ranges between 1-3 years)
• Risk profile: Moderate
• Liquidity: Moderate
• Ideal for: Investors seeking higher returns than bank FDs but are comfortable with moderate risk and have the expertise to assess company performance
• Top benefits:
  • Higher interest rates than bank FDs, potentially enhancing returns
  • Can be traded in the secondary market for liquidity
• What to consider:
  • Credit risk depends on the creditworthiness of the issuer
  • Taxable interest income 
  • Liquidity may be limited compared to other options

8. Post Office Time Deposits

This is another government-backed investment option. The post office allows investors to open traditional FDs at fixed return rates. They are popular among those who prefer a sense of security.It’s like opening a fixed deposit with the government, offering guaranteed returns.

• Ideal tenure: Years (ranges between 1-3 years)
• Risk profile: Very low
• Liquidity: Low
• Ideal for: Those seeking guaranteed returns and a safe investment option
• Top benefits:
  • Backed by the government, ensuring safety and minimal risk of default
  • Easy to open and manage, suitable for all investors
• What to consider:
  • Lower returns compared to debt funds
  • Taxable interest income 
  • Premature withdrawals may result in penalties

9. Savings Accounts

Savings accounts are the most basic and accessible investment option. They offer a safe place to park money while earning a nominal interest rate. Savings accounts provide easy access to funds and are ideal for maintaining day-to-day liquidity.

• Ideal tenure: Years (Interest is set per annum and is often credited quarterly)
• Risk profile: Virtually zero
• Liquidity: Very high
• Ideal for: Maintaining emergency funds and managing day-to-day expenses
• Top benefits:
  • Easy access to funds, allowing withdrawals and deposits anytime
  • No lock-in period, offering flexibility for fund management
  • Safe and secure, backed by deposit insurance up to a certain limit
• What to consider:
  • Low interest rates may not keep pace with inflation
  • Other options may offer higher returns with slightly higher risk

5 Tips to Arrive at the Right Option

Aside from the robust set of options to choose from, here are a few tips to help arrive at the right choice:

• Define Goals: Investors must write down their financial objectives to steer and filter down investment options. It’s like having a roadmap to achieve financial aspirations
• Assess Risk Appetite: How much market volatility is comfortable? Your risk tolerance will help you choose suitable investment options.
• Conduct Thorough Homework: Individuals should research short-term investment plans to understand what fits and aligns with their financial goals. They must compare interest rates, fees, and terms to find the best fit. Also, they need to read up on the company’s performance if they want to invest in NCDs. Don’t just jump in; do your research first.
• Diversify: To mitigate potential risks, it is ideal to spread investments across different asset classes. Don’t put all your eggs in one basket.
• Review regularly: Financial situations and market conditions evolve, requiring periodic assessment of the investment portfolio and adjustments as needed. Keep an eye on your investments and make changes as needed.

Optimising Investments with PowerUp Money

Short-term investment plans transform the perspective on investing by offering flexibility and growth without long-term commitments. They’re also accessible and help diversify a financial portfolio.

While the options in this guide help decide the best investment plan, a comprehensive platform is necessary to help shape returns. 

That’s where PowerUp Money is the perfect partner. Its comprehensive planners, like Power Age, effortlessly make goal-based investment choices and financial strategies.

So don’t hesitate! Sign up with PowerUp Money today!

FAQs

1. What are the key benefits of short-term investment options?

Short-term investments offer flexibility, liquidity, and lower risk than long-term investments. They allow you to grow your money without long-term commitments, making them ideal for individuals looking to manage surplus cash efficiently.

2. Are short-term investments suitable for risk-averse investors?

Yes, many short-term investments, such as Fixed Deposits (FDs), Recurring Deposits (RDs), and Treasury Bills, are tailored for risk-averse investors. These options focus on capital preservation while offering stable, predictable returns.

3. How do I choose the right short-term investment plan for my goals?

The right short-term investment depends on flexibility, liquidity, risk appetite, and returns. To achieve the best outcome, it is essential to define your financial goals, assess risk tolerance, and diversify investments across different options.