What is Short Term Investing?A short term investment is an investment made to achieve a near term financial goal. These investments are liquid and can be sold or converted into cash quickly.Short term investments help you achieve near term goals such as going on a short vacation or buying a mobile phone. The duration of short term investment varies between 7 days to 1 year.
Roadmap for your Short Term InvestmentBefore you start planning for the short term you should consider analysing these things.
- Figure out what are you planning to achieve?
- Look at things with a practical mindset and check how much time will it take to achieve your goal. If it could be achieved in a year, then it is a short term financial goal.
- Apply the SMART goal strategy. The SMART goal strategy helps you analyse if your goal is,
Why are these things important?
- If you invest your money in a savings account it will generate tiny returns.
- If you invest your money in risky assets then chances of loss are high.
- If you opt for investments with low liquidity, you might not be able to withdraw them quickly at the time of need.
Which are the Best Investment Options for Short Term?
Fixed DepositsIf you are a conservative investor and do not want to take any risk then a fixed deposit is one of the best short term investment option for you.Generally, an FD ranges from 7 days, 14 days, 30 days, 45 days to a year or even more. However, a penalty is applied if you withdraw the money before it matures. Currently, the returns on FD ranges from 5% to 6% annually.
Recurring DepositsRecurring deposits are different from Fixed Deposits. RDs are useful if you do not want to invest a large sum at a time. It helps you save and invest a fixed sum of money at regular intervals and provides returns between 4% to 6% p.a. This investment ranges from 6 months to 1 year or more. Similar to an FD, a penalty is applied if you withdraw money before maturity.
Liquid Mutual FundsLiquid funds invest in commercial papers, certificates of deposits, treasury bills, etc.These liquid funds can be easily redeemed in T+1 days. These investments are considered safe as they primarily invest in AAA rating (highest stability) assets.The returns from liquid mutual funds range from 4% to 10% which is higher than a bank FD. Hence, it is one of the best short term investing options.
Ultra-Short Duration FundIf you have a financial goal that is between 3 months to 6 months, then ultra-short-term funds can be the ideal investment option. This fund has low risk and the rate of return ranges from 4.81% to 7%.
Defensive stocksIf you wish to directly invest in a share market but are afraid of extreme volatility, then defensive stocks are one of the best investing options for you.This investment option is not necessarily for short term. But it can be liquidated easily.Defensive stocks are those stocks that provide constant dividends and stable earnings regardless of how the market is performing. These stocks have constant demand in the market and due to this, they remain stable during the various phases of the market.Few examples of defensive stocks are HUL, ITC, etc. On average both the stocks have provided returns of 12.89% and 12.12% in the last 20 years.Recommended reading: Best stocks to buy in India
|Investment options||Yearly returns||Liquidity||Holding Period||Features|
|Fixed Deposit||5-6%||Premature withdrawal is allowed with a penalty||7 days to 1 year or more.||Bank FDs are one of the safest short term investment option preferred among retail investors.|
|Recurring deposit||4%–6%||Premature withdrawal is allowed with a penalty||6 months to 1 year or more.||Recurring deposits are most popular for short term as you can invest in small portions.|
|Liquid Mutual Funds||4%-10%||Highly liquid||The underlying papers mature in 91 days||Liquid mutual funds are a preferred investment option as they are highly liquid.|
|Ultra-Short Duration Fund||4.81%- 7%||Highly liquid.||3 months to 6 months||Ultra short term funds provide higher returns than a bank FD.|
|Defensive stocks||10%-12%||Highly liquid||A year or more.||Defensive stocks are a preferred investment option for low-risk investors who wish to directly invest in the stock market.|