Every person needs to understand the importance of saving money for future. In many cases, you may neglect investing your money in good assets when you do not have too much time for them. Many people assume that investment needs to be considered only when you have a time period of more than few years.
However, this need not be the case always as you can easily choose various short term investment options that can provide attractive returns in the market. There is also yet another myth about such short term financial goals and many people stay away from them.
People assume that such investments can be risky and they may lose their hard earned money. This is not true and you can even find safe investment options for short term in the market.
In this article, we will guide you to choose the best short term investments options available in the market that can provide good returns on your money.
Not only that, you will also find it very easy to invest money in them and they are also very safe. You need not get into equity trading or derivatives trading to earn quick money as this is flooded with various risks and you will not have guarantee on your capital money.
On the other hand, when you choose the traditional forms of investment for short duration, you need not worry about the safety factor and comfortably invest your money in them. Remember that when your money is sitting idle without earning anything even for few months, you are losing lot of value in them due to inflation and other factors.
For this reason, you should always look for options to make your money work for you so that you can secure your future.
Why investing your money is essential?
When you keep your money without investing them at home, you will be losing lot of value in them. This due to inflation and money constantly loses its market value due to this factor.
Considering this factor, it always makes sense to keep your money in the bank so that it can at least earn the savings account interest on an annual basis. You need to understand that even your savings bank account will provide interest on the money kept in your account and this should be the better option when compared to keeping your money at home.
However, the rate of interest for savings account is usually very less and you can earn nearly 4 percent on an annual basis. For this reason, you should always look out for options that can give you better returns than the savings account.
Primary factor to consider for short term investment
Liquidity is the primary factor you need to consider when looking for short term investment options in the market. Remember that the only purpose of choosing such short term financial goals is due to emergency requirement of money in the near future.
For this reason, people usually do not want to lock their money for a long duration and they prefer to invest them only for a few weeks or months. Depending on your individual requirement, you can choose the suitable option given in this article.
When you consider the approximate time frame for your investment in the market, you should always calculate a few weeks lesser than the expected time so that your money will be ready in your account for your future requirement.
It is not a feasible option to lock your investment for many years when you have short term goals and you should avoid real estate and other deals that are not very liquid in the market. In worst case scenario, your investment in real estate can get stuck for many years and this should be avoided even though it has potential to deliver higher returns.
Never give prominence to returns when you are thinking about short term investment as this can lead you to risky investments. Make sure that you choose safe options even if they are not high on returns as your investment will be secure in this manner.
Remember that you may need this money at any time in future and it is not worth to risk it just for the sake of higher returns. For this reason, direct investment in the equity or derivative market can be risky and there are chances that your money can get stuck for a longer duration than your expected period.
However, when you choose the safe options given in this article, you will be able to get decent returns without taking any risk with your investment.
1. Fixed Deposits
- This is by far the best method when your intention is to choose short term investment options in the market. You can choose this even for few weeks or months as per your convenience and this offers complete safety for your investment.
- Make sure that you check the short term investment fixed deposit rates with various banks as the rates may vary slightly depending on the amount you are investing and duration for which you plan to invest in the fixed deposits.
- Apart from that, you will also be glad to know that senior citizens can get slightly higher rate of interest from various banks. If you are a senior citizen, you can take advantage of such offers and invest in the fixed deposits.
- You will have complete flexibility when it comes to withdrawing your money in future even before the maturity date. The only thing with premature withdrawal is that you will get slightly lesser rate of interest than the full term deposits. This option is suited when you are in need of funds urgently and you can easily break your fixed deposit to liquidate your investment.
- When you want to stay invested for few years, do not go for a long term plan and always go for yearly or half yearly options. In this way, you can reinvest the amount after that period and you will have complete security with regards to liquidity in times of emergency needs.
2. Investing in Silver and Gold
You can even choose the traditional method of investing money and buy gold or silver according to your preference and budget. This is considered a safe investment even though the returns may not be too high when you are planning to invest in them only for a few months.
However, when you have a time horizon of more than a year, you can choose to invest in gold or silver and secure your investment for your future. This is relatively safer than other assets as the price of silver and gold is stable when compared to other investment options in the market.
If you can time your short term investment properly, you will be getting handsome returns from this option. Make sure that you understand the risks involved in such investment before you put your money in gold and silver. You should also consult a financial advisor before choosing such options and you can divide your portfolio according to your risk appetite.
3. Open Ended Mutual Funds
Choosing to invest in the mutual funds means that you will be taking some amount of risk when compared to other options mentioned in the article. However, when you carefully choose the large cap funds or the debt funds that primarily invest in secure assets; you will be able to reduce the risk factor by a huge margin.
Apart from that, you should also understand that some mutual funds come with lock-in period and you should strictly avoid them when you are in need of short term investment option. For this reason, you should always prefer the open ended mutual funds that will allow you to withdraw your money at any time in future.
Yet another advantage of choosing such mutual funds is that they will also allow you to withdraw your money partially and this gives opportunity for investors to exit at different levels. In this way, whenever you are in some profits, you can exit some part of your investment.
Choosing debt mutual funds will offer slightly less returns when compared to the equity funds. However, when your preference is towards safety, you should never get into mid cap or small cap funds that have potential to deliver higher returns. Always stay with large cap funds that offer stable returns and you can protect your investment to a major extent in this manner.
You will also be glad to know that some mutual funds also offer tax benefits and this can be an added advantage when you have an investment horizon of few years. In most cases, you will have to stick with the fund for nearly three years to be eligible for tax benefits and this can add to your profits in the long run. Choose this option only when you can wait for such a long duration.
4. Company Deposits
This is similar to fixed deposits and it provides better returns than the regular fixed deposits offered by banks. However, you need to understand that bank deposits are more secure than company deposits. These are offered by private companies and they usually offer better rate of interest than the bank rates for fixed deposits.
This is a convenient option when you are investing small money and it can give you good returns for your short term investment. But you should strictly avoid this option when you are having lump sum money to invest and it is always a good idea to choose bank fixed deposits.
The difference in rates between company deposits and bank fixed deposits will not be too much and you can expect 1 or 2 percent more than the bank rates for fixed deposits. If you have carefully analyzed the options with company deposits, you can go for it and choose the reputed companies in the market that have good track record. In this way, you can ensure that your money is invested safely in the market and you can get better returns for your investment.
5. Recurring Deposits
This is a convenient option when you want to invest money periodically and not in lump sum investment. It allows you to invest money on a monthly basis for a duration of six months or one year.
You will get returns at the end of the term and this is the best choice when you want to choose the short term investment on a periodic basis. It gives decent returns and you will also have provision to withdraw your money in times of emergency.
The only drawback in case of premature withdrawal is that you may not get complete benefits and the rate of interest will be less in that case. Many salaried professionals choose this option as this will help them to save money on a monthly basis and the overall duration for this option is not too much.
The best thing you can do is to choose the duration of six months and again start fresh after this period is completed. In this way, your money will not get locked for a long duration and you will also get periodic benefit out of your investment. It is very safe as it is offered by banks and even post office schemes are available in this option.
These are some of the best options you can consider when you are looking for short term investment options in the market. If you are having lump sum money, it is a good idea to split your investment among different options as this will reduce the risk by a huge margin.
In this way, you will also have no issues with liquidity and you can pull money from one or the other investment that is giving you good profit at that moment. In this way, partial withdrawal of your investment becomes easy and you can choose to exit your profitable investments at a later stage.
You will also be able to stay invested in other investment deals that are not giving expected returns and this will help you to get better returns from them in future.