Short-Term Investment Plans: In today's financial landscape, securing enough funds for future needs can be challenging. Short-term investment plans, particularly those lasting around one year, offer a viable solution. Here, we explore some of the best short-term investment options for 2024 to help you make informed decisions about your hard-earned money.
Bank Fixed Deposit (FD)
Overview: Bank FDs are among the safest one-time investment plans due to the involvement of reputed banks, often government-backed.
Tenure: You can choose deposit terms ranging from 6, 9, or 12 months, with options to extend.
Liquidity: Upon maturity, FDs can be renewed, and you can select various payout frequencies, such as monthly, quarterly, or annually.
Returns: Banks currently offer around 6.5 per cent interest per annum for a 12-month term, with senior citizens receiving an additional 0.5 per cent.
Taxation: Interest earned is subject to tax based on your income slab.
Recurring Deposit (RD)
Overview: RDs require regular deposits over a fixed period, culminating in a lump sum at maturity. Most banks facilitate opening RDs online.
Tenure: Ideal for short-term goals, you can opt for tenures as short as three months or up to one year, with monthly deposits.
Liquidity: The minimum lock-in period is one month. Withdrawals before this period result in no interest payment.
Returns: RD interest rates typically match those of bank FDs.
Taxation: Interest earned over Rs 10,000 is subject to TDS.
Post Office Term Deposit
Overview: A highly secure investment option, with fixed returns and government backing.
Tenure: Investment terms range from one to five years, with one-year deposits being common.
Liquidity: Interest is paid annually, and premature withdrawals are allowed after six months.
Returns: Current interest rates range from 6.6 per cent to 7.4 per cent, depending on the term length.
Taxation: Interest earned is added to your taxable income.
Fixed Maturity Plans (FMPs)
Overview: Close-ended debt mutual funds offering consistent returns over a set period.
Tenure: Tenures vary from one month to five years.
Liquidity: Low liquidity; best for those willing to lock-in funds.
Returns: Provides consistent returns by avoiding market volatility, though returns are not guaranteed.
Taxation: Gains within 36 months are taxed as income, while gains beyond 36 months are taxed at 20 per cent post-indexation.
Arbitrage Mutual Funds
Overview: Hybrid funds that profit from price differences in different markets.
Tenure: Open-ended funds, beneficial for holding at least 12 months to avail tax benefits.
Liquidity: High liquidity due to their open-ended nature.
Returns: Currently, these funds yield about 6 per cent per annum, but returns are neither guaranteed nor consistent.
Taxation: Classified as equity funds, they qualify for tax advantages.
Debt Mutual Funds
Overview: Suitable for those seeking low-risk, daily profits. They are less volatile than equity funds.
Returns: Returns can reach up to 7 per cent per annum, though not guaranteed.
Taxation: Gains within 36 months are taxed as income, while gains beyond 36 months are taxed at 20 per cent post-indexation.
Liquidity: Units can be redeemed quickly, providing high liquidity.
Key Factors to Consider Before Investing
Risk: Short-term investments generally carry lower risk compared to long-term options. However, some short-term instruments, like T-bills, are safer than others.
Diversification: Short-term investments allow flexibility to shift funds and diversify, avoiding long-term capital tie-up.
Liquidity: High liquidity is a significant advantage, enabling easy conversion to cash with minimal value loss.
Flexibility: Short-term investments require smaller amounts, allowing for broader portfolio diversification and additional investment opportunities.
Tax Efficiency: Short-term capital gains are taxable. Rates vary across products, so consider tax implications when choosing an investment plan.
For those with an investment horizon of one year or less, the above short-term investment plans offer safe and effective options. While returns may be lower due to tax deductions, prioritising security over high returns is advisable for short-term financial goals.