Top 3 Advantages of Short Term Investment Plans in India - IIFL Insurance

Top advantages of Investing in Short Term Investment Plans

There is no better time to start thinking about investments than now. The entire nation is under lockdown, and people are getting to spend more time indoors; there is enough space to plan their finances adequately. Though the COVID-19 pandemic continues to haunt the world, life moves on, and you need to fulfill specific duties such as paying for your children’s education, repay loan EMIs, save money for starting a business, etc., to achieve these small term goals, going for short term investment is the best choice.

The prime reason to opt for short-term investing is to generate returns within a shorter duration, mainly to attain specific short-term financial goals. This can also be called goal-based investing, wherein you choose to stay for a short term or long term based on the target to achieve. There is no fixed period for short-term investing, but staying invested from 7 days to 1 year can be classified as short-term investments.

When thinking about saving money, it is common for most people to talk about bank savings account only, but other short-term investment options offer better returns. We take you through such opportunities that help you build wealth in the short term.

Neha is a 22-year-old fashion designer and has just got a job in a leading TV channel. Her work involves a lot of designing, and she needed an Apple Macbook. The new Apple laptop costs approximately a lakh, but since it is necessary for her daily work, Neha plans to save at least Rs 10,000 every month and hopes to purchase it in a year. 

However, Neha’s dad, a retired bank manager, suggests she invest that amount in equity mutual funds as it could deliver better returns in the short term, based on stock prices. Neha was scared that she might lose money in case of a market crash, but on her father’s encouragement, she went ahead and started a SIP (systematic investment plan) of Rs 10,000 in 3 best short-term mutual funds. In 8 months, the total value of her investment was Rs 1,05,000, reaching her goal of Rs 1 lakh to buy a MacBook well ahead of time. Thanks to her dad, who pushed her to invest in mutual funds, Neha was able to purchase the laptop in just eight months which might have taken a year if she had not kept her money in a savings account.

Top Short-term investment plans in India

You may want to buy jewelry or want to go on a foreign holiday or might like to purchase a car in the next six months. To achieve these goals, one can park their hard-earned in any of the following short term investment plans:

  • Fixed Deposit (FD)
  • Recurring Deposit (RD)
  • Corporate Deposit (CD)
  • Debt Mutual Funds
  • SIP in Equity Mutual Funds
  • Stock Market
  • Gold Funds

 

The duration, rate of return, and taxability of each option vary according to the duration of the investment, which can be referred from the below table:

Investment Type Duration Approximate Returns Taxation
Savings Account No tenure 3 – 4% p.a. As per your Income-tax slab rate
Bank fixed deposits 7 days to 10 years 2.5% – 5.5% p.a. As per your Income-tax slab rate
Recurring Deposits 3 months to 10 years 4 – 6% p.a. As per your Income-tax slab rate
Debt Mutual Funds 3 to 12 months 8 – 11% p.a. As per your Income-tax slab rate
Large-cap mutual funds 3 to 5 years 10%-12% p.a Short term capital gains at 15%, Long term capital gains at 10% (for gains above Rs 1 lakh)
Stock market 3 to 12 months 10 – 30% Short term capital gains at 15%, Long term capital gains at 10% (for gains above Rs 1 lakh)
Gold Bonds 6 to 36 months 2.50% As per your IT slab, if held for less than 36 months. Long term capital gains at 20% (if sold after 36 months)

What are the benefits of short-term investments? 

The money you earn must be put to work to give good returns, and the best short-term investments do the same. However, there are also better reasons why you need to choose these as your regular savings method.

Top 3 Advantages of Short Term Investment Plans

  1. Disciplined Savings: Anything in life requires practice, and investing needs more discipline, which is achieved by investing in short-term funds. Start by putting a small sum of money every month in the best short-term investment plans, and within no time, it would have grown to a sizable corpus. Start short-term investments today and watch as your goals are met with perfect precision if your planning is done correctly.
  2. Flexibility: As the name suggests, these investments are made for the short term and hence give you the freedom to withdraw or change your investment purpose within that specific period. There are no lock-ins that force you to stay invested for the long term and so you can change course if the investments are not delivering returns or running into losses for a consistent period.
  3. Diversification: In the financial world, there is a popular saying – “Do not put all the eggs into one basket,” which means not to park all your cash in one asset class. This helps minimize the risk of capital loss and makes use of the growth opportunity offered in other asset classes. For example, you can choose the best share to buy for the short term and also opt for short-term mutual funds for maximizing your returns while playing safe at the same moment. These short-term investments enable you to make the best use of the diversification strategy, thereby improving the returns.

 

The most brilliant way to choose between short-term and long-term investments is first to understand the purpose of investing and defining your financial goals. Then, you may do it yourself or get the help of your friend who is good at this or approach a registered financial advisor who will guide you with the various products available under short-term investments after accounting your risk appetite, investment capital, and the investment need.

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