Short-term investments are one of the best ways to accumulate wealth in a short span of time ranging from 1 to 5 years. These are low-risk investments that can help you accumulate funds for your next trip or for your next big-ticket purchase.
While choosing any investment vehicle, you need to assess the risk involved, tenure, and how much would you gain on the invested amount. Today, there are quite a few investment channels where you can park your money for a shorter duration and earn attractive interest on them.
So, if you are looking to see your money grow in a short period of time with zero or minimal risk, here are some investment vehicles that you may consider.
1. Savings Account
Probably the most preferred option for risk-averse investors, getting access to funds put into such accounts is relatively easier than other investment channels. You can deposit or withdraw funds from a savings account as per your convenience and requirement. However, the interest rates are comparatively lower than other channels, ranging from 3.5% to 7% p.a. Choose investing in a savings account only if you need access to your funds at regular intervals.
2. Recurring Deposit
Recurring Deposits or RD is a great short-term investment plan that lets you invest on a monthly basis. You can opt for an RD account if you don’t want to park a lump sum amount at once. The tenure for RD accounts ranges from 6 months to 10 years. Though you can break your RD as per your wish, it’s recommended that you wait for the maturity period to accumulate more wealth. That’s because the interest earned may take a hit in case of premature withdrawals. An accessible investment channel, you can open an RD account at any financial institution or post office. Note that the interest earned on the amount is taxable.
3. Fixed Deposit (FD)
The only fundamental difference between an RD account and FD account is that the latter lets you invest a lump sum at one can go. FDs are good for both short- and long-term investments. The tenure generally ranges from 7 days to 10 years. The FD interest rate varies from bank to bank. Though you can liquidate an FD as per your convenience, be wary of the fact that similar to RD, the interest will take a hit. Also, note that the interest earned on FDs are taxable.
Investing in an FD can earn you good returns depending on the amount you have invested and tenure you have chosen. It’s also a completely risk-free investment option.
4. Liquid Funds
These are a type of mutual funds that invest in short-term government securities or certificates. Though you can withdraw money from these funds, it usually takes two to three days to get access to the funds. You can park your money for a period ranging from one day to 90 days. The interest rate you can earn on the investment amount generally ranges from 4% to 7%. You can expect a higher amount of security for the money invested as liquid assets invest in money market instruments and rarely see a decrease in their Net Asset Value (NAV).
5. Fixed Maturity Plans
Fixed Maturity Plans come with a lock-in period with tenures ranging from 30 days to 5 years. This short-term investment channel is slightly different than a basic FD. These are usually debt funds that invest in government securities and company debt. Also, you can enjoy more returns with such plans compared to FDs.
6. National Savings Certificate (NSC)
The biggest advantage of this investment vehicle is that you can claim tax deduction under Section 80C of the Income Tax Act. An initiative undertaken by the Government of India, NSC is a savings bond that allows risk-averse investors to invest for a short-term while enjoying tax benefits. It comes with a tenure of 5 years.
7. Arbitrage Funds
Arbitrage funds or equity mutual funds lets you earn returns through the simultaneous purchase and sell of equities on different exchanges to generate profit.
These are some of the short-term investment options that you can look into while considering where to put your money to work. Most of these channels are risk-free and lets you expand your wealth over a short period of time.