Because the money is invested for a short window, these plans usually avoid high-risk assets that could crash overnight, focusing instead on debt-based or government-backed securities.
15 Best Short Term Investment Options in India
Based on the current financial landscape, here is a breakdown of the top small investment plans available:
| Investment Option |
Risk Profile |
Ideal Investment Horizon |
Features |
|---|
| Savings Account |
Very Low |
Immediate / Daily |
The most basic and accessible form of keeping money. |
| Liquid Funds |
Low |
1 day to 3 months |
Debt mutual funds that invest in very short-term market instruments. |
| Recurring Deposits (RD) |
Low |
6 months to 3 years |
Perfect for those who want to save a fixed amount every month. |
| Bank Fixed Deposits (FD) |
Low |
7 days to 3 years |
The classic choice for guaranteed returns. |
| Arbitrage Funds |
Low |
3 months to 1 year |
Mutual funds that capitalize on price differences in different markets. |
| Treasury Securities (T-Bills) |
Sovereign (Nil) |
91 days to 364 days |
Short-term debt instruments issued by the Government of India. |
| Money Market Accounts |
Low |
Up to 1 year |
Portfolios consisting of high-quality, short-term debt securities. |
| Stock Market/Derivatives |
High |
1 day to 1 year |
For those with a high risk appetite looking for quick gains through volatility. |
| Corporate Deposits |
Moderate |
1 to 3 years |
Similar to bank FDs but issued by companies, often offering higher interest rates. |
| Investments in NCDs |
Moderate |
1 to 3 years |
Non-convertible debentures that offer fixed interest for a specific tenure. |
| Short-Term Debt Funds |
Moderate |
1 to 3 years |
Mutual funds focusing on paper with a maturity of 1 to 3 years. |
| National Savings Certificate (NSC) |
Low |
5 years (Fixed) |
A government-backed post office savings scheme. |
| Equity Mutual Funds |
High |
1 to 3 years |
Though usually long-term, some investors use them for 1–3 year windows (high risk). |
| Fixed Maturity Plans (FMPs) |
Low to Moderate |
Tenure of the fund |
Close-ended debt funds that match the maturity of the underlying assets. |
| Ultra-Short Duration Funds |
Low |
3 to 6 months |
Funds that invest in debt instruments with a maturity of 3 to 6 months. |
15 Best Short Term Investment Options in India
These are the best short term investment plans that can be opted for by beginners who want to experience how short-term investments work. Let us take a look at some short term investment plans:
Savings Account
A savings account is the most accessible and liquid short-term option, acting as the foundation of personal finance. It is the ideal place to park your emergency fund or hold cash that you may need at a moment’s notice. While it is not a high-growth instrument, its primary benefits are unparalleled safety and immediate accessibility.
- What It Is: The most fundamental and widely used investment option. It is a deposit account held at a bank or other financial institution.
- Key Features: It offers extreme safety of capital and the highest level of liquidity, meaning you can access your money at any time.
- Returns and Risk: The returns are minimal and often do not beat inflation. The risk is virtually non-existent.
Liquid Funds
For those looking to earn slightly better returns than a savings account without sacrificing liquidity, liquid funds are an excellent choice. These mutual funds are a popular alternative for parking surplus cash for a few days to a few months. They invest in highly secure, short-maturity instruments, making them a very low-risk product.
- What It Is: A category of debt mutual funds that invest in very short-term market instruments like treasury bills and commercial papers.
- Key Features: These funds are designed to provide high liquidity with a low-risk profile. The underlying assets have a maturity of up to 91 days.
- Returns and Risk: They typically offer slightly better returns than a savings account. The risk is low, but as a market-linked product, returns are not guaranteed.
Short-Term Funds
These are for the planners who have a bit more patience, say, a year or two. By investing in a broader mix of debt and money-market instruments, these funds aim to outperform basic liquid funds. With this option, you are taking on a tiny bit more risk because the duration is longer, but the potential in the form of high returns is often worth it.
- What It Is: A broad category of debt mutual funds designed for short investment horizons.
- Key Features: They invest in debt and money-market instruments, aiming to outperform liquid funds and traditional fixed-income products like FDs.
- Returns and Risk: They carry slightly higher risk than liquid funds due to the longer investment duration, but offer the potential for higher returns.
Recurring Deposits
A Recurring Deposit (RD) is the perfect tool for those who want to build a short-term corpus through disciplined, regular savings. It IS a traditional, highly reliable instrument that helps you systematically invest a fixed sum each month while earning a guaranteed rate of interest.
- What It Is: A savings instrument where you can invest a fixed amount every month for a pre-determined period.
- Key Features: It instills a habit of disciplined saving. The interest rate is fixed when you open the account, providing predictable, guaranteed returns.
- Returns and Risk: It is a very low-risk instrument, and the returns are moderate and fixed.
Bank Fixed Deposits
FDs are probably the most beloved one-time investment plans in India. If you are risk-averse and want the comfort of knowing exactly what you will earn, FDs deliver. You put in a lump sum, let it sit for your chosen period, and collect predictable interest.
- What It Is: You deposit a lump-sum of money with a bank for a specific duration.
- Key Features: Interest rates are fixed upfront, guaranteeing your returns. Tenures are flexible, anywhere from just 7 days to a full decade.
- Returns and Risk: Your returns are locked in and predictable. It is considered one of the absolute safest investments available, with virtually no risk.
Arbitrage Funds
Arbitrage funds look for price differences for the same stock in different markets, like buying in the cash market and selling in the futures market. Because they hedge their bets, the risk is quite low. They are more tax-efficient than debt funds, making them a secret weapon for those in higher tax brackets.
- What It Is: A type of mutual fund that generates returns by capitalizing on the price difference of a stock between the cash market and the futures market.
- Key Features: The strategy involves simultaneously buying in one market and selling in the other, which makes it a low-risk investment. These funds are taxed like equity funds.
- Returns and Risk: The returns are generally modest, comparable to liquid funds. The risk is low as the positions are fully hedged.
Treasury Securities
When you buy a T-Bill, you are essentially lending money to the Government of India, making it one of the safest options. These are issued at a discount, meaning you buy them for less than they are worth and get the full face value at the end. They are the gold standard for sovereign safety.
- What It Is: Short-term debt instruments issued by the Government of India.
- Key Features: They are issued for tenures of 91 days, 182 days, and 364 days. They are highly liquid and are issued at a discount to their face value.
- Returns and Risk: Returns are moderate. They are considered risk-free as they are backed by the sovereign guarantee of the government.
Money Market Account
A money market account is like a savings account, designed to offer slightly higher interest rates. But there is a catch: you might need to keep a higher minimum balance. It is a great middle-ground for people who keep a significant amount of cash ready for a rainy day but want that cash to actually grow.
- What It Is: A savings account variant that typically pays better interest.
- Key Features: These accounts may come with conditions, such as a higher minimum balance requirement.
- Returns and Risk: They offer better returns than standard savings accounts. The risk is very low, similar to a regular savings account.
Stock Market/Derivatives
Trading stocks or derivatives in the short term is more like high-speed trading. If you know what you are doing, the gains can be massive and fast. If you do not, you could lose a chunk of your principal. Only go this route if you have the time and the nerves to monitor the ups and downs daily.
- What It Is: Involves directly buying and selling company shares or trading in derivatives on the stock exchange.
- Key Features: This option requires in-depth market knowledge, active management, and a high-risk tolerance.
- Returns and Risk: It has the potential for very high returns but also carries an equally high risk of capital loss.
Corporate Deposits
Companies need cash just like banks do, and sometimes they will pay you a higher interest rate than a bank would just to get it, which is known as corporate FDs. They are great for boosting your returns, but you have to thoroughly check the company’s profile. Check their credit rating; an extra 2% interest is not worth it if the company is on shaky ground.
- What It Is: Fixed deposits issued by corporations and NBFCs instead of banks.
- Key Features: Higher interest rates to attract investors away from safer bank products.
- Returns and Risk: Fixed returns that exceed bank deposit rates. Credit quality matters hugely here; always check ratings (AAA, AA) before investing.
Investments in NCDs
Non-Convertible Debentures (NCDs) are long-term debt tools used by companies to raise capital. Since they cannot be converted into equity shares, they usually offer a higher interest rate to stay attractive. You can even trade them on the stock exchange, giving you a way out if you need your cash sooner than expected.
- What It Is: Debt instruments where corporations borrow from the public.
- Key Features: Fixed interest rate for a set period. It is often tradable on stock exchanges.
- Returns and Risk: Attractive returns that beat FDs. Risk depends entirely on the issuing company’s creditworthiness.
National Savings Certificate
The National Savings Certificate (NSC) is a common type of savings certificate provided by the Government of India. It is well-known for its security, guaranteed returns, and tax benefits. However, due to the five-year lock-in period, it is a good investment for only the longer end of a short-term investment horizon.
- What It Is: A savings certificate issued by the Government of India, which has been a popular type of savings certificate, due to its security, tax-saving features, etc.
- Key Features: This certificate has a five-year fixed lock-up period; the interest earned is compounded annually but paid out when the certificate matures.
- Returns and Risk: The returns from this certificate are guaranteed; therefore, there is no risk associated with losing money on the principal amount invested.
Equity Mutual Funds
While equity mutual funds are one of the best tools for long-term wealth creation, they are generally not suitable for short-term goals. Their high volatility means that there is a significant risk of capital loss if you need to withdraw your money within a short timeframe of 1-3 years.
- What It Is: Mutual funds that primarily invest in the stocks of various companies.
- Key Features: Ideal for long-term wealth creation, not for short-term goals.
- Returns and Risk: They have the potential for very high returns but also carry a high risk of capital erosion in the short term.
Fixed Maturity Plans
Fixed maturity plans are essentially the mutual fund version of an FD. They are close-ended, meaning you can only get in during the initial offer period, and they mature on a set date. The fund manager tries to lock in yields by buying bonds that mature at the same time the fund closes, making the returns much more predictable than your average mutual fund.
- What It Is: FMPs are close-ended debt mutual funds that have a fixed maturity date.
- Key Features: The fund manager invests in debt instruments whose maturity matches the tenure of the plan. This structure helps to lock in the yield.
- Returns and Risk: The returns are relatively predictable but not guaranteed. They carry a low to moderate level of risk, primarily credit risk.
How Do Short-Term Investment Plans Work?
The entire point of investing in a short term investment plan is to find a safe, convenient parking spot for your money. You need it to be secure and easily accessible for a goal that’s just around the corner, maybe in a few months or a year or two. This entire process is built around one golden rule: safety first, returns second.
Essentially, a short-term plan works by protecting your principal investment from risk while generating a small, reliable profit. When your deadline arrives, you can confidently withdraw your original amount, plus the little extra it earned, and put it toward your goal without any nasty surprises.
Once you have identified your specific goal and timeline and chosen a low-risk investment option, it starts earning a small, steady amount of interest. The goal here is to make sure your money grows a little bit, often just enough to beat inflation, so it does not lose its purchasing power over time.
Who Should Buy a Short-Term Investment Plan?
Investing is not just about how much money you have; it is about what that money is for. Short-term plans are a perfect fit for:
- The Emergency Funders: Individuals aiming to create or maintain a fund for unforeseen expenses.
- The Goal Seekers: People saving for a specific purchase, like a new laptop, a wedding ring, or a car deposit.
- The Risk-Averse: If the thought of the stock market makes you worried, these safe havens are for you.
- Income-Focused Investors: Retirees or anyone else who needs a steady stream of cash rather than long-term growth.
- Temporary Fund Parkers: If you have a large sum of cash but are waiting for the right time to buy property or stocks, these plans keep your money productive in the meantime.
Features of the Short-Term Investment Options
The whole point of a short-term plan is flexibility. You want your money to flow wherever it is needed most. Here are some of the features of short-term investment plans with high returns:
Liquidity
Short-term investments provide easy access to funds, allowing investors to withdraw their money with minimal delay. This is ideal for meeting urgent financial needs or unexpected expenses.
Safety
While no investment is 100% risk-free, these are as close as it gets. Because they focus on high-quality debt and government securities, the chance of you losing your initial principal is incredibly low compared to the volatile long-term investment plans, like the ₹1 crore investment plan.
Stable Returns
Short-term plans are about consistency, and these plans make it much easier to hit your short-term goals. You can look at the historical data and get a very good idea of what your returns will look like.
Diversification
You do not have to put all your eggs in one basket. You can spread your cash across T-bills, FDs, and money market funds, creating a balanced shield that protects you from any single entity failing.
Low Minimum Investment
You do not need lakhs of rupees to get started. Many liquid funds and RDs let you start with as little as ₹500 or ₹1,000, making them accessible to literally everyone.
Limitations of Short-Term Investment Plans
While short-term plans are fantastic for keeping your money safe and sound for near-future goals, it is important to know what they do not do. Knowing their limitations is key to using them wisely:
Lower Returns
In exchange for low risk and stability, you get low returns. These plans are designed to be steady, not spectacular. Your money will likely grow, but it will be a slow and modest process. If you are looking for the kind of growth that builds significant wealth for retirement, a short-term plan isn’t the right vehicle.
Restricted Growth
A major challenge for short-term investments is that their low returns sometimes struggle to keep up with inflation. This means that even though the number in your account is getting slightly bigger, the actual buying power of your money might be slower.
Limited Investment Options
The options for short-term investing are a bit shorter than the long-term ones. You are mostly restricted to debt and cash-like instruments, which can feel a bit repetitive if you enjoy complex portfolio building.
Early Withdrawal Charges
Even though these are short-term, some options, like FDs or certain insurance-linked plans, have lock-ins. If you try to break the contract early, the bank or institution might charge a penalty on your interest.
How to Choose the Best Short-Term Investment Plan in India
Finding the right short-term investment plan is not a one-size-fits-all situation. First, you need to be brutally honest about your time horizon. If you need the money in 48 hours for a potential emergency, a savings account or liquid fund is the only way to go. If you are saving for a wedding in two years, you can afford to look at corporate deposits or short-term debt funds that pay a bit more.
Second, consider your tax slab. If you are in the 30% tax bracket, a standard FD might lose a lot of its returns to the tax authority. In that case, arbitrage funds might be a smarter, more tax-efficient play. Finally, look at the credit quality. Never chase an extra 1% or 2% interest rate by giving your money to a company with a poor credit rating, since it is not worth the risk of losing your entire principal.
Things to Consider While Investing in Short-Term Investment Plans
Before you start investing, keep these three factors at the front of your mind for the best results:
Capital Safety
Do not gamble with money you need for rent or a wedding. Stick to high-grade government bonds, AAA-rated corporate paper, or insured bank accounts. This is to align with the golden rule of short-term investment plans: safety first, returns second.
Liquidity
How fast can you get your hands on the cash? If an investment takes a week to process, it is not truly liquid. You must match the liquidity of the asset to the urgency of your goal.
Taxability
It is not about how much you make; it is about how much you keep. Remember that interest from options like FDs is added to your income and taxed at your slab rate. Use deductions under 80C and Section 10D(D) to your advantage where possible under the Income Tax Act 1961.
What is the Tenure of Short-Term Investment Plans?
The short-term label usually covers anything from a single day up to three years. Here is the usual breakdown:
- Very Short-Term: It could be under one year. T-Bills, liquid funds, and 6-month CDs are included here.
- Short-Term: This ranges from 1 to 3 years. This is where you will find short-term bond funds and longer-duration FDs.
This range gives you the flexibility to match your investment exactly to when you expect your financial goals to arrive.
How to Calculate Returns From Short-Term Investment Plans?
If you want to see exactly how much you have gained, the math is pretty straightforward. Here is the standard ROI formula:
| ROI = [(End Value of Investment - Initial Value of Investment) / Initial Value of Investment] × 100
|
If you do not want to do the manual math, most financial websites offer an ROI calculator, like a ULIP calculator, that does the manual work for you in seconds.
Conclusion
Short-term investing is all about being smart with the money you are going to need soon. It is the bridge that gets you from today to your next big milestone without letting inflation eat your savings. By choosing the right mix of liquidity and safety, you can sleep soundly knowing your money is both protected and productive.
FAQs on Short-Term Investment Plans
1
Are short-term investments suitable for beginners?
Absolutely. In fact, they are the best way to start. Short investment plans have a lower barrier to entry, and the risks are much easier to understand than complex stock options or cryptocurrencies.
2
What are the tax implications of short-term investments?
In most cases, the profit you make is added to your total income and taxed at your current tax bracket. This is why it is important to calculate your post-tax returns rather than just the total returns.
3
How do I choose the right short-term investment plan?
To choose the right short-term investment plan, look at three things: your timeline, your goal, and your risk tolerance. If you need help, a consultation with a financial advisor can save you a lot of headaches.
4
Are there any fees associated with short-term investments?
Yes, it can be expense ratios in mutual funds or premature withdrawal penalties in FDs. These small fees can reduce your profits if you are not careful.
5
What are some examples of short-term investments?
The most common ones you will see are high-yield savings accounts, Certificates of Deposit (CDs), liquid mutual funds, capital guarantee solutions, and Treasury bills.
6
What are the best short-term investments?
There’s no single best, but high-yield savings and money market funds are the most popular because they offer the best balance of safety and liquidity.
7
How long is a short-term investment?
Short-term investments typically last anywhere from a few months to 3 years, focusing on maintaining liquidity and minimizing risk while generating modest returns.
8
Which mutual fund is the best for short-term investment?
Liquid funds and ultra-short-term debt funds are usually among the best mutual funds. This is because they focus on high-quality debt and keep volatility to an absolute minimum.
