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10 best short-term investments options in India (2022)

short-term investments options

As long-term investments are important, short-term investments are also important for your short-term goals.

Such goals like buying a car or house, keeping an emergency fund, saving for child education, etc…

Rather than keeping money, you can invest money to get a good return through short-term investments options.

What are short-term investments?

Short-term investments are financial investments that can be converted into cash within a year and it is highly liquid.

In short, investments made to sell within 5 years are considered short-term investments.

Here are all the short-term investments options I included can be can sell within a year. Few can even withdraw on the day you bought.

Because short-term investments are highly liquid and safe, they provide lower returns compared to long-term investments.

So don’t expect false assumptions about short-term investments options to get your money double or triple money in a short period.

Top 10 best short term investments options in India

Short term investmentsRiskReturnLiquidity
Repurchase AgreementLow4%High
Treasury Bills Low2 to 7%.High
Fixed DepositLow5 to 7% Medium
Corporate DepositsLow 6-8%Medium
Money Market FundsLow5 to 7%High
Corporate BondsLow6 to 9.5%High
Savings AccountsLow3 to 4%High
Debt Mutual FundsLow7 to 12%High
Large-Cap StocksLow8 to 12%High
Government BondsLow6.5 to 7.2%High

You can choose these short-term investments options for any of your short-term goals whether it is keeping an emergency fund or buying a car within a few years.

Repurchase agreement (Repos)

A repurchase agreement is a short-term financial instrument that comes at a discount to its actual value, usually overnight.

The dealer sells repos to individual investors on an overnight basis, with an agreement to buy back these securities at a slightly higher price.

The difference between your bought price and the actual value of Repos is your interest.

For example, suppose you bought a shoe at a discount of 5%. The price of the shoe is Rs 1000 and you bought it for 950.

The next day you sold at its actual price which is Rs 1000. In the same way, you earn profit in T-bills.

Risk: It is very safe because it is backed by government securities. It has low risk.

Return: Because it is come up with very short-term maturity, the return you expect from repose is 4%.

Duration: The repos come up with an overnight maturity. But term repos usually can come with a maturity of 3 months. It has the lowest duration among all short-term investments options.

Liquidity: It is highly liquid.

Treasury bills (T-bills)

When governments need funds for a short period they issue treasury bills, the interest on it depends on market forces. It is also called T-bills.

Treasury bills are money market investments securities.

It is issued at a discount to its original value. The same as Repos interest on it is the difference between bought price and original value.

Risk: It has low risk. It is also backed by the government so there is no chance of losing money.

Return: It depends on your tenure. You can get a return of  2 to 7%.

Duration: It ranges from 14 days to 365 days.

Liquidity: You have to keep your money to earn interest in it. If you sell before maturity then you’re not entitled to get interested in it. However, it is highly liquid.

Fixed deposit

A fixed deposit is a financial instrument provided by banks that provides individual investors a fixed interest rate with a fixed tenure.

It is also called FD. Mostly it provides a higher return than a bank saving account.

The interest rate and the initial amount you will receive at the maturity date.

Risk: FD has low risk. Its return is guaranteed.

Return: Fd can give you a 5 to 7 % interest rate.

Duration: The maturity of FD ranges from 7 days to 10 years. It varies across banks.

Liquidity: You can withdraw your money after the minimum lock-in period. but you will be charged penalty fees for early withdrawal.

Corporate deposits

Short-Term Investments Options

Same as bank FD, corporates, and non-financial banking companies (NFBC) provide services of deposits for a specific maturity date at a fixed interest rate.

CD can provide a higher return than the bank FD. In both FD and CD, you have the flexibility to choose the tenure of your investment.

Risk: It depends on the companies. But mostly it has high safety and low risk.

Return: Corporate deposits give a 6-8% return on investments.

Duration: The tenure of corporate deposits ranges from 12 months to 60 months.

Liquidity: It has a minimum lock-in period of 3 months after you can withdraw your money any time before maturity.

Money market mutual funds

Money market funds invest in highly liquid short-term debt instruments. MMF also invests in the short-term investments options we discussed here.

Such as cash, cash equivalent, t-bills, commercial paper, t-notes, short-term bonds, repos, etc…

The investments they made have high credit quality.

For buying money market funds you have to give an expense ratio. Usually, it is around a 0.1 to 0.5% ratio of your investments.

Risk: It has low risk. Because it is investing in debt and debt is mostly high quality.

Return: You can get a 5 to 7 % return on it.

Duration: It ranges from 1 day to as much as you want to invest.

Liquidity: It is highly liquid.

Corporate bonds

Corporate bonds are issued by companies. Rather than directly borrowing from the bank, companies issue corporate bonds securities to borrow from individual investors.

Corporate bonds provide a higher return than other bonds types.

Risk: Usually it has a low risk. But the risk of corporate bonds all depends on the company you’re buying the bonds from.

Ideally, you can get an idea of corporate bonds risk by looking at the companies’ bonds ratings.

These are some companies that give bonds ratings: CRISIL, CARE, ICRA, SMREA, Brickwork Rating, India Rating, and Research Pvt.

Return: The corporate bonds pay up to 6 to 9.5%.

Duration: For the short term the maturity of bonds ranges from 1 to 3 years.

Liquidity: After 3 months you can redeem your money. It will become highly liquid after 3 months.

Savings accounts

A saving account is a type of bank account in which you can deposit money and also can get interested in it.

You have to keep your money for 1 year in a savings account to get interested in it. Because most banks provide annual interest on deposits.

This is the best place to keep your emergency funds.

Risk: It has the lowest risk among all short-term investments options.

Return: Saving an account can give you a 3 to 4% return.

It all depends on banks. Some banks can give you up to a 7% return on deposits, but eventually, they end up providing a 3 to 4% return.

Duration:  1 day to as long as you want to deposit.

Liquidity: It is also highly liquid among all short-term investments options. You can deposit and withdraw money at any time.

Debt mutual funds

Short-Term Investments Options

Debt mutual funds invest in corporate bonds, government bonds, money market instruments, and all the debt instruments out there. It is also known as Bonds fund and Fixed income funds.

You are charged an expense ratio to invest in debt funds. Usually, the expense ratio is around 0.1 to 0.8% of your investment.

Risk: The debt they invest in is usually highly safe and has low risk. Thereby your debt funds also have low risk.

Return: The return on debt mutual funds is usually around 7 to 12%. However, you can get even more returns based on fund performance.

Duration: 1 day to as long as you want to invest.

Liquidity: It is highly liquid. It has no lock-in period so you can redeem your money at any time.

Large-cap stocks

Large-cap stocks are big companies and less volatile. Large companies are well established thereby their stock price move less compare to other stocks.

It is easy to find large-cap companies. You just have to look around you what product or service people are using the most.

Risk: It has low/medium risk. Because it has more reliable sales and profits than smaller companies so it tends to perform well.

Return: Because these are big companies so they make less risky investments thereby they grow slower than smaller companies.

Here you can get an 8 to 12% return on your investments. Although you can get even more than that. Among all short-term investments options, the large-cap stock is the best for high returns.

Duration: From 1 day to as long as you want to invest.

Liquidity: It is highly liquid. You can sell anytime after you purchased the shares.

Government bonds

Government bonds, as the name suggests issued by the government. They issued bonds when they need money or to regulate the money supply in an economy.

The short-term government bonds have a maturity of within a year.

It gives you a return lower than corporate bonds because it is highly safe and backed by the government.

Risk: It is a highly safe and low-risk short-term investment option.

Return: The return you can get on bonds is 6.5 to 7.2%.

Duration: The short-term government bonds have three categories 91 days, 182 days, and 364 days.

Liquidity: The government bonds are highly liquid. You can sell bonds anytime on the secondary market to other investors.

FAQ

What are the best short-term investments options for 3 months in India?

The best short-term investments options for 3 months are:

  • Saving accounts
  • Repurchase agreements (Repos)
  • Fixed deposits
  • Treasury bills (T-bills)
  • Money market mutual funds

What are the best short-term investments options for 3 years?

The best short-term investments options for 3 years are:

  • Large-cap stocks
  • Money market funds
  • Debt funds
  • Corporate bonds
  • Government bonds
  • Corporate deposits

Which mutual funds are good to invest in for the short term?

The best mutual funds you can choose to invest in the short term are the ones that invest the majority in high-quality debt instruments.

Such mutual funds are:

  • Money market funds or liquid funds
  • Fixed income or debt mutual funds
  • Balanced funds (debt-equity funds)

What are the best short-term investments options for high returns in India?

The best short-term investments options for high returns are:

  • Large-cap stocks
  • Money market funds
  • Debt funds
  • Corporate bonds
  • Balanced funds (debt-equity funds)

Which stocks I can select for investing in the short term?

The less volatile stock and has established business is the one you can pick up. 

Infographic of short-term investments options

Short-Term Investments Options

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