While short term investment is NOT known to give high returns; if one still wishes to park funds for a short period of time, here are some Short Term Investment options in India.
Firstly, short term investment does not give you high returns. Money needs time to grow and hence it is a long term process. As a general suggestion avoid investing in risky options like equity and equity based mutual funds if you are looking for short term investments, especially if the time frame is less than 3 years. However, if you still need short term investments for various reasons; maybe you have some surplus funds available today and know that there is an upcoming expense in the very near future maybe 1 or 2 years down the line or you just need some funds to earn more than the traditional savings bank account interest then here are some options you have:
The most straight forward and secure investment option in this list is your good ol’ bank fixed deposits. It is safe, secure and has been the chosen option of many investors who look to park fund for a short period of time. You can have a Bank FD for even 3 months.
Company Fixed Deposits:
This product is similar to the Bank FDs; however the lock in duration is longer generally a year or 3 years. The other difference is the security with the company fixed deposits actually depends on the reliability and stability of the company. It is relatively safe, no doubt, but one is advised to check the performance of the company and only then invest your hard earned money.
Fixed Maturity Plans:
These are as the name suggests – Fixed for a specific duration and are generally safe, although being market dependant these can see some amount of swings. These are kind of mutual funds that invest in short term investment options and are mainly focused on investing in government securities, corporate bonds, and money market instruments etc., so that the investment is relatively safe. The duration can be a year or more depending on your requirements.
Debt Mutual Funds:
These are mutual funds that invest in secured instruments like Government Bonds and various other fixed returns debt options, so as to maintain a certain level of returns on investments. But since these are mutual funds they are affected by the market trends but by and large will give you close to FD returns or even more in some cases.
Ultra Short Term Mutual Funds:
Equity mutual funds are not recommended for short term investment, since if there are down swings in the markets, then your money will not have enough time to enjoy the benefits of the market corrections unless the swings are very rapid, which is highly unlikely in the short term. However, there are certain mutual funds that are aimed at those investors who wish to park their funds for a short period of time and do not prefer the traditional options of short term investments mentioned above. These are Ultra Short Term Funds and they mainly invest in secured investment options and deposits and hence are averse to extreme volatility. There can some fluctuations though, but not much that will make you lose anything you invested.
Some other Options to consider:
Well, this is tricky but if you want to invest for a year or two or have an impending function or marriage or something for which you will need Gold, then you can invest in gold in various ways from buying the physical one to the ETF and Mutual Funds etc (see here for details). However the Gold seems to have stabilized for now and although there are price fluctuations, it may fail to give you high returns in the short term.
These will work like your SIP only that it is a Fixed Returns product with a Bank that also gives you returns similar to FD. You money will be invested every month or quarterly or half yearly, as you specify in your RD. Once the tenure is over, you can have that money, plus the accumulated interest. This again gives returns higher than savings bank account. It is also a great way to plan for expenses that may be a year or two away. You can slowly build towards your target with small investments.
It is always advised to look for a long term horizon of at least 7 years or even more if you really like to see your money grow well. However, if you are someone who is in need to find some short term investment or just does not like to block money for longer tenures, then you may consider some of the short term investment options mentioned above.