Short-Term Investments: Everything You Need To Know
Short-term investments on your mind? It lets you get your invested money out quickly without waiting a long time. Many people choose to park their savings in short-term investment vehicles. This helps them meet short-term financial obligations or act as a safety net in the case of unforeseen events.
Let us understand in depth the concept of short-term investing strategies.
What Is A Short-Term Investment?
An investment is short-term if its duration is shorter than three years. They can be easily liquidated in cash within three years.
You invest for the short-term period to meet expenses or to buy an asset in the near future. For instance, if your child is 16 and you need funds for graduation in two years, you should plan short-term investments accordingly. Some other examples of short-term objectives that call for short-tenured investments include:
- Purchasing a motorcycle for your child in 6 months
- Buying a big-screen LED TV in the current financial year
- Upgrade to a Macbook or the latest iPhone when they are released
- Buying a car next year
- Going for an overseas vacation
How Do Short-Term Investments Work?
Investors put money for a short-term duration in various investment options ranging from fixed deposits, liquid funds, commercial papers, money market accounts, etc. They are highly liquid and can be easily converted into cash. They allow investors to gain interest, which is higher than that of a savings account. They help the investors to meet their short-term financial requirements.
Features Of Short-Term Investment Plans
The characteristics of short-term investments are as follows:
- Higher rate of return compared to a savings account
- Easily convertible in cash within a period of 3 years
- No lock-in for early or late withdrawals
- No set maturity date
Short-Term Investment Options
1. Fixed Deposits (FD)
Banks and NBFCs offer a financial instrument called a fixed deposit. One benefit of FDs is the greater interest rates they provide compared to savings accounts.
The maturity period of a short-term fixed deposit ranges from seven days to thirty-six months. Banks' FD interest rates are fixed for the tenure but can change according to RBI’s policies and even differ from one bank to another when investing. The interest earned on Fixed Deposit and savings accounts is exempted u/s 80TTA of The Income Tax Act for a maximum amount of INR 10,000/- and up to INR 50,000/- in the case of senior citizens u/s 80TTB.
2. Liquid Funds
Liquid funds are mutual funds that invest your money in market instruments and short-term debt securities that provide high liquidity. An investor can withdraw from them anytime, giving them high liquidity. The expected return on investment for liquid funds is usually 5% plus.
3. InvoiceX
InvoiceX is the first-ever credit-rated, diversified version of invoice discounting offered by Griv Invest. Companies may borrow money against their outstanding invoices via invoice discounting. Banks and other big financial institutions in India raise over INR 75,000 crore using invoice discounting, making it a significant component of the country's short-term financing business.
4. LeaseX
With LeaseX, investors can buy assets, in principle, to lease to various businesses. This is possible with just one investing tool. It is a one-of-a-kind investment product which allows investors to become lessors. It offers a straightforward structure, stable, fixed returns, and diversity.
One of the best things about LeaseX is its accessibility at a low initial investment. It allows them to participate and earn passive income through leasing without committing vast sums of money, starting at INR 77,284. This differs from the common conception that high-yielding investment opportunities are only accessible to wealthy people or large institutions in the past.
5. Corporate Bonds
Businesses often issue corporate bonds to attract investors and finance their operations and expansion. The interest rate and the time until maturity are set in advance for these bonds. Corporate bonds benefit those wishing for a stable and periodic income stream.
Since corporate bonds are considered more credit-risky than a bank fixed deposit, they come with higher interest rates. Compared to corporate bonds, government bonds have a lower risk of default, which comes with a relatively lower interest rate.
6. Initial Public Offerings (IPOs)
Companies offer IPOs to raise capital for growth and expansion. This is one of the best options to raise capital by selling shares to the general public. IPOs offer high returns, especially for successful companies. Also, with a successful listing, investors tend to gain profits with a short investment period. They also provide liquidity because of their listing on stock exchanges. However, it is essential to note that investing in IPOs carries market-related risk and volatility.
Conclusion
The choices above may be worth considering for those seeking to invest in opportunities with shorter time horizons. Investors should explore different short-term options based on their investment horizon and risk appetite while considering the investment goal. If you are new to investments, consider visiting Grip Invest to stay updated with the latest investment trends.
Frequently Asked Questions
1. What is a sweep in fixed deposit?
A great option to invest for the short term is a sweep in fixed Deposit. With a sweep-in feature, the bank will move the shortfall from your fixed deposit to your savings account anytime your savings are insufficient to cover a purchase or transaction without lowering your fixed deposit interest rate. You get the benefit of higher interest rates and liquidity, as in the case of a regular savings account. The sweep-in happens in multiples of as low as INR 1 to INR 100, so interest loss is minimal.
2. What are automatic recurring payments?
This investment option is excellent for those who want to make small monthly contributions rather than a large one-time payment. Postal Recurring Deposits (RDs) and bank RDs are two options; most banks provide RDs with terms starting from six months.
3. What are post-office time deposits?
A post office time deposit is one option for those seeking a short-term investment plan with guaranteed returns. India Post offers the service, and it's particularly well-liked in India's most rural and distant regions. One may create a post office time deposit program with one year or more tenure.
4. What is ASBA in IPO?
ASBA stands for ‘Application Supported by Blocked Amount.’ When an investor uses ASBA to apply, the application money will only be deducted from the bank account if the application is approved and the applicant gets the allotment.
References:
- Financial Express <https://tinyurl.com/mr2spzjd>
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