Investments are usually assets that help to generate income, or there is appreciation in the face value of the asset. The main objective of investing is to make profits. Investments are most commonly purchased at a lower cost and sold at a higher price which gets the investor speculative gains. Investing means putting money to work to start some project, buy an asset or earn interest income. According to financial experts, everyone needs to invest a minimum amount. This amount can be invested in any investment tool like equity, mutual funds, savings accounts, bonds and fixed deposits.
Investments are the backbone of economic growth, and they give a considerable contribution to the nations GDP. In 1700 BC, the code of Hammurabi provided the legal framework for investments. Investments can be made in the short or long term. Investments have a risk factor, but some investment tools have negligible risk.
Advantages Of Short Term Investing
Short term investments have high flexibility as investors can withdraw their funds anytime they want. This might earn them less interest, but there is no fixed maturity period before which funds cannot be withdrawn.
Investors can earn good profits in the short term by investing in short term funds. This is very beneficial for people who want to spend their funds for growth but also want flexibility. Hence, short term investments are a good option for investors who wish to earn good profits in short tenures.
3. Risk Profile
Short term investments have a low-risk profile as money invested is also less. Short term investments are more reliable and give better profits to investors. It is advised to invest in short term funds so that investors have some liquid funds with them at times of emergencies.
Best Short Term Investment Options
Post-office deposits are the safest and secure short term investment option as they are highly reliable and offer high-interest rates. These are an excellent investment option as they assure interests to the investors. The investors are not allowed to withdraw funds before six months which makes post-office deposits less flexible. Post-office deposits give an interest of 7 % per annum, and if these investments are held until five years, then the investors will get 7.8 % interest. These deposits are taxable according to the income tax slab of the investor.
2. Recurring Deposits
Recurring deposits are an excellent investment option for short term investors. In this fund, a small amount is deducted from the savings account of the investor and is transferred to the RD account. Small amounts are deducted every fixed tenure as per the terms and conditions of the fund, and interest is provided on the deposit. These funds have a minimum lockdown period before which withdrawing funds will not earn any interest. RD’s are one of the best investment options, and they have the same interest rate as of fixed deposits, but the interest is applied according to the date of investment.
3. Debt Mutual Funds
Experts consider Debt mutual funds as the best short term investment tool as they earn high interests, and at the same time, they have a low-risk profile. In these funds, the amount is invested in some specific large business organisations to earn quick returns along with substantial growth. Hence, debt mutual funds are an outstanding small tenure investing option which can make good returns, and they are highly reliable.
4. Fixed Deposits
People often think that fixed deposits are not an excellent short term investment option, but fixed deposits earn good returns even in the short term. Fixed deposits have a reasonable interest rate even in short tenures. Investors often underestimate this investment tool, but if one uses it properly, then fixed deposits are one of the most reliable investment tools. The power of compounding makes fixed deposits earn high returns. Hence, fixed deposits are suitable for the long term as well as short tenures so investors should maintain consistency while investing even in short duration to earn better returns.
5. Savings Account
The savings account is one of the best, yet an investment tool that most people underestimate. People often underestimate the growth capacity of the savings account. The savings account can earn good interest if one keeps a high amount in the savings account. It has a reasonable interest rate and offers the highest liquidity as one can deposit and withdraw money anytime. The savings account has a minimum balance to maintain, but it provides a much higher liquidity than cash holdings. Hence, investors need to invest some amount in savings account also.
6. Stock Market
If the investor has the appropriate knowledge of the stock market, then they can invest in stocks. Many stable and consistent stocks offer excellent growth and return, even in the short term. Hence, if the investor has appropriate experience and knowledge of the stock market, then they can earn good returns in a short time also.
7. Money Market
The money market provides high liquidity and good returns. The investments in the money market earn an average profit of 7 % per annum. The taxes charged on these investments are high. We advise investors with proper experience and knowledge to only invest in the money market as it can be highly volatile.
Short term investments have high liquidity so, investors need to examine what kind of liquidity they want with their funds. Short term investments can earn good profits if one invests in them after proper research and analysis. Investors need to study the various factors that affect the growth of these investments. According to investing experts, investors must maintain consistency with their funds. Short term investments usually have lower risk and can earn good profits.
Short term investments have their advantages and disadvantages, but investors must have some funds invested in short term investments that offer good returns and also have good liquidity. Hence, it is vital to maintain a portfolio with various kinds of investments. One must go for short term investments only after proper research and analysing the different factors so that he makes the appropriate investments, and they earn adequate returns.