As an investor, you must know the importance of diversifying your portfolio. You must explore various schemes and policies to balance your investments and lead a stable economic life.
In addition to income tax savings options, you also need to have basic knowledge of schemes that can offer good returns. The main element in this consideration is — duration.
Not everyone is ready to wait for a long tenure to receive lucrative returns. So, is there an option to get funds at a faster pace?
Yes. A suitable short-term savings plan can be an additional resource to generate quick funds. However, should you prioritise them over long-term schemes like the public provident fund (PPF) or national savings certificate?
Find out all the details on short-term investment plans in this informative article.
In simple words, saving plan ideas like short-term schemes are ideal for people with additional income.
You might be familiar with options like recurring deposits. Should you invest in these schemes? Scroll ahead to know more.
A short-term savings plan are schemes that generally have a maturity duration of five years or less. You can liquidate the returns of such a saving plan to cash.
These schemes are also popularly known as temporary investments.
The following examples of short-term savings plans will offer you a clear picture of these investment options:
You can explore additional options that have a maturity period of under five years.
This section explains the main benefits of such a high-return investment.
The tenure and availability of liquid assets in the short term are flexible. You receive cash without a considerable waiting period. So, you can benefit from this liquidity and use the returns for future investments.
Since the capital at stake in such liquid funds is comparatively low, the risks are not high. Also, there are chances of receiving high returns due to good interest rates.
Businesses and individuals that require a boost on the financial front can consider exploring short-term investment plans. The small tenure allows for a chance to bolster emergency funds for desired activities.
A conventional savings account has an interest rate hovering around the 3% mark.
So, you receive better returns compared to traditional bank saving accounts.
Here are some of the common cons of considering short-term investment plans.
This point is applicable as the amount of investment in these schemes is less. So, you do not receive a high gross return from short-term schemes.
If you want to create a pension fund or receive monthly passive income, short-term schemes are not the best saving plan ideas.
The types and choices for a short-term investment are restricted to some well-known schemes. Even stock market opportunities to receive returns under three years are limited.
As an investor, you should consider these aspects while choosing an appropriate saving plan for short-term tenure.
First, it is crucial to be clear about your intention behind investing. You should ask the following questions:
Some short-term savings plans can offer high returns. However, they are dependent on share market volatility. So, always consider the risks involved before investing in such schemes.
The tenure of such plans is flexible. You can explore schemes that offer returns after six months as well as ones that span for three years.
So, consider your cash requirement and choose an appropriate time horizon.
The Indian market has some profitable short-term investment schemes. Some of these options are traditional and have less comparative risk. On the contrary, some fall under the stock market.
So, explore these top choices before investing for short-term goals.
These are investment deposits in which you invest a lump sum amount for a fixed period. After completing the tenure, you receive this amount along with the compound interest from the bank or financial institute.
Notably, the rate of interest remains fixed throughout the deposit. Compared to conventional savings schemes, fixed deposits offer better returns.
A recurring deposit is an investment tool that enables you to invest money in the scheme regularly. You can choose the amount to deposit money and have more flexibility in this savings plan.
In most cases, the minimum deposit period in recurring deposits is six months. This way, investing for short-term goals becomes a practical possibility. Another main aspect of RDs is that the interest rates are higher than a savings account.
However, you cannot withdraw the amount before the maturity of the recurring deposit. Notably, a recurring deposit is a risk-free investment. You can receive guaranteed returns as the rate of interest in these schemes remains constant.
So, if you aspire to stay away from market fluctuations, this investment tool can prove profitable. Choose a reliable bank or financial provider before opening such a deposit.
Finally, you can also explore mutual fund schemes called liquid funds for short-term investment.
In these schemes, you invest in debt that matures within 91 days. This option offers high flexibility and returns. The returns are high compared to overnight securities and funds.
So, should you consider exploring this option?
Well, it depends on your financial condition. If you have surplus cash and can tolerate the risk of market volatility, liquid funds can be a good choice. You can also transfer money in equity funds if you use a systematic transfer plan.
A short-term savings plan can prove ideal if you require funds within the maximum span of three years. You can even explore schemes like liquid funds that allow a smaller duration of receiving potential returns.
It is crucial to understand the pros and cons of such money-generating options. For risk-free individuals, fixed and recurring deposits can seem handy choices.
On the other hand, if you want to invest in schemes with a high-interest rate, opt for mutual funds. In any case, it is essential to evaluate your financial condition and invest wisely.
Packages or schemes like fixed deposits, liquid mutual funds, recurring deposits, and treasury securities are worth your consideration. The holding period of these schemes is comparatively small.
You can invest in metals like gold or silver, stock derivatives, a money market fund, and a debt instrument for a small period of three months. Such saving plan ideas can prove lucrative.
The resource allocation for short-term gains is subjective and depends on your tolerance for risk. However, it is safe to allocate 5% of your take-home amount for short-term investment.
Simply put, the 50:30:20 rule implies segmenting 50% of your income on needs, 30% on wants, and 20% on savings. You can explore long and short-term investment plans to utilise the 20% amount.
Short-term investments are ideal for investors to increase the probability of receiving high returns in a small duration. Investing for short-term goals can be beneficial if you are looking for both stable and liquid alternatives.
Short-term funds have a slightly high-interest rate and liquidity when compared with fixed deposits. You can explore these funds with a moderate tolerance for risks.
A business can consider investing in short-term schemes under the requirement of raising temporary capital. You can receive the much-needed boost with high-return schemes that have a small tenure.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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