Best Short Term Investment options in India. Investment options are always constrained by your investment horizon, what investment instrument you chose is highly related to your investment horizon, today we are going to discuss few investment options for the short term. Now check more details about “Best Short Term Investment options in India” from below…
Before we go ahead it is very important to define short term, for some short term is 1 year for some 2 years, but for sound investment principles, anything less than 5 years is short term for me anything below 5 years, I would look at short term investment options.
Before making any investment it’s good to understand your goals, your investments should tie up neatly with your goals, let’s say you want to buy a car 3 years down the line, then investing in 5 year NSC will not make any sense as money will not be available when you require, In the next section I will discuss the best short term investment options in India
Though strictly not an investment option, savings accounts still provide some interest if your money is parked and your money is super liquid available any time you need it. Interest rates on savings are in the range of 4-6 %.
Income greater than Rs 10000 on savings account is taxable under section 80TT, which means if your income is greater than Rs 10000, you are interest income will further reduce according to your tax bracket.
Liquid funds or money market funds are a type of mutual funds which invest in government securities, corporate bonds or treasury bills normally all the securities they invest in are less than 90 days, which means they are not exposed to too many medium term/long term interest rate change fluctuations
Returns from liquid funds are dependent on type of securities they invested in some funds exclusively invest in government securities and hence are less volatile while some also investment in short term corporate bonds and can have little higher volatility though come with better returns also, top performing liquid funds have delivered about 7- 8.5 % in last year, when you invest do look at what are the underlying securities the fund has invested in it can give you a fair idea of risks involved
Fixed deposits are darling of Indian investors, this is the investment most used by Indians, reasons being it is safe can be done easily and has assured returns, now with online redemptions and all it is easy to manage also. FD returns vary from 7 % to 8 % based on time period of your fixed deposit. Interest earned from fixed deposits is taxable based on your tax slab. To know more about advantages and disadvantages of fixed deposit, click here.
Postal term deposits are the same as Fixed deposit accept that the institute you hold money will be a post office, there interest rates are also similar to fixed deposits as well as the tax treatment
Recurring deposits is simple way to sweep your access funds in your account to a recurring deposit, these deposits are liquid and you can withdraw money at any time, so whenever you have access money you can move it into the recurring deposit, ideal for people who generate some regular surplus and want to do low maintenance investments. Tax on income from RDs is charged at the rate of your tax slab.
These are the mutual funds, which invest in slightly longer maturity securities than liquid funds typically 91 days to 500 days so, due to this they come with higher interest rate risks. These funds charge exit load in the range of 0.1-1% if funds are redeemed before a specified time period.
As with liquid funds key things to look at is what are the underlying securities in these funds.
Tax rules are the same as in liquid funds, short term gains are taxed at your standard tax rate.
These funds again invest in short term securities but with maturities upto 3 years hence they are exposed to higher interest rate risks than liquid and ultra short term funds, tax treatment remains the same as liquid and ultra short term funds
As the name suggests these funds come with a predefined lock in generally 3 years, so if you are clear about the time when your require money these are a good option, there are no interest rate risks as the invest in securities which have lower or maturities equal to the maturity of the fund, they are also more tax efficient than fixed deposits, as money is allowed to grow for the maturity period and there is no TDS
If your investment horizon is 5 years than you can also invest in National Savings certificate, these certificates get redeemed after 5 years, they are tax deductible under section 80C.
This article is written by Sarabjeet Singh, the cofounder of Bodhik.com, who provides financial advisory services in India. Connect with them for any kind of financial planning.
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