Short-term, goal-oriented planning is considered key to wealth creation and fulfilling short-term goals. From saving up for a car or dream bike, education, to an exotic holiday, everything requires savings.
In the financial world, asset allocation is crucial. For most, the investment mantra remains long-term investment with low risk and short-term investment with high liquidity.
An investment that is less than or equal to one year is called a short-term investment. Short-term investments are beneficial when there is a goal to fulfill in the near future or when someone is simply risk-averse and want liquidity as an option.
Short-term investments are generally considered to be less risky than long-term investments because they offer quick liquidity and a shorter time frame for potential losses to be recovered.
The short-term investment options mentioned below come with the following set of advantages
- Liquidity & Flexibility
Short-term investment offers much-needed liquidity and flexibility. This means you have the choice of saving money and let it grow over a period of your choice – 3 months, 6 months or any time withdrawal option. - Low Risk
Since they pose lesser risk and volatility, the short-term investment provides a good breathing space to your portfolio. - Substantial Returns
Substantial returns can be obtained by short-term investments. This investment shows results in the form of great returns in a very short amount of time.
Gold And Silver
Gold and silver are a good option for both short-term and long-term investments. Since the price of gold and silver is always subjected to fluctuation and increases in value, they are bound to give high returns both in the long as well as short run. Investing in gold and silver also comes with low risks.
Recurring Deposits
This form of investment is both short-term and secure. You can opt for a recurring deposit from any bank or post office within the country. The best thing about this investment plan is that it allows one to invest on a monthly basis. The minimum lock-in period provided by a bank is six months and the maximum period is of one year. A person can withdraw money anytime before the maturity date but it is advisable otherwise in order to reap all the benefits associated with them.
Debt Instruments
If you are planning for a short-term goal or looking to grow your money in a short span of time, consider investing in debt instrument. A debt instrument is a paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with the terms of a contract. Low to negligible risk to investors is provided by debt instruments as they are high on the yield factor.
Savings Account
In case you are risk-averse when it comes to investment, then savings accounts are the best investment option for you. It comes with high liquidity and zero risks, although the returns are not that substantial. Another thing to remember is that interest rates vary from bank to bank. Therefore, checking the interest rate provided by each bank is a must before opening a savings account.
Large Cap Mutual Funds
Large-cap mutual funds are those which involves selective investments in the stocks of large business organisations to gain substantial growth in a short period of time. They have the potential to give returns within one to three years of investment tenure.
Alternative Investments
There are multiple alternative investment options which give high returns like private equity, venture capital, invoice discounting and others. In the case of invoice discounting, it provides the investor with the opportunity to invest in unpaid invoices of blue-chip companies for a short tenure with high returns. Another added advantage to it is that it is a great way of diversifying your portfolio.
Money Market Accounts
Money market accounts are similar to savings accounts, but they offer a higher interest rate and may require a higher initial deposit. These accounts have low risk and high liquidity, but the returns may not be as high as other short-term investments.
Peer-to-Peer Lending
Peer-to-peer lending allows investors to lend money directly to borrowers, bypassing traditional financial institutions. It can offer higher returns than other short-term investments but also carries some risk.
What Makes A Good Short-Term Investment?
A good short-term investment should have a relatively low risk, high liquidity, and a decent return on investment. It should also match your investment goals, whether that’s saving for a specific goal or simply earning a return on your money. When considering a short-term investment, it’s important to research the investment thoroughly and understand the risks and potential returns before making any decisions.
Bottom Line
Post-tax returns shouldn’t be overlooked when the requirement is to invest only in short-term instruments. It is critical to remember that short investments are more for capital preservation rather than wealth creation. Hence, it is fair to not to compromise on safety for getting a bit of extra return. Make sure you base your decision on liquidity and safety of the investment instead of depending solely on the return.
