Money is the most valuable commodity in life; hence, all are focused on increasing its value by investing in crucial financial products. The prudent way to attain this is to consider the best investment plan in India that provide adequate returns. This permits you as an individual to save your funds and simultaneously earn interest constituent and higher returns over the long term. However, there’s no quick means of earning a massive interest constituent and returns without factoring in some risks.
However, if you are one of those who believe in holding some liquidity, then you must consider looking out for short-term financial instruments with the potential of generating high returns. This investment option permits you to simply save your money and generate good interest constituents, helping you mitigate your short-term goals within the deadline. However, the major challenge here is selecting the correct short-term investment option that matches your financial preferences and needs.
Owing to the presence of multiple short-term investment plans in India, it may be confusing for you to choose the best financial option. Each fixed-income financial option comes with a wide range of benefits to lure you, however, like any financial product, it also has certain drawbacks, which you must consider factoring in. So, it is up to you to determine what’s the correct and incorrect plan for you. To understand better the short-term financial plans yielding high returns, read on.
The aim of any short-term plan with the potential to generate high returns is to yield satisfactory profits in a considerably brief time period. Such plans put high emphasis on covering anticipated short-term expenditures. Most often, retail investors who favour short investment options are not interested in waiting years to witness the growth of money. They look for efficient and rapid results instead. In such cases, short-term plans can help.
Short-term financial instruments with the potential to generate high returns are made to meet a near-future desire or need. For instance, you are looking to purchase a phone on the first day of its launch, and for this, you know you must have adequate savings to make the purchase. Such scenarios are when opting for a short-term plan can be useful. So, how can you choose a short-term financial plan?
In India, investment options are classified into two types –
∙ Long term
∙ Short term
Thus, investment options that offer a maturity period of the short term i.e., six months, one year, or two years are known as short-term plans.
So, your short-term financial goals have two major factors –
∙ Importance of the financial goal
∙ Duration of the financial goal
The duration of a short-term goal may be up to three years period. Goals with a timeframe of a week or three months may be categorised as exigency goals. For such timeframes, you may opt for short-term debt funds i.e., liquid funds or ultra-short duration funds as they have the potential of providing higher returns than other fixed income instruments and may provide capital preservation benefits.
To meet your short-term goals like exigency fund, debt payments, school fees and others, wherein you have a waiting period of at least a year or more, then you may even consider opting for company fixed deposits as they generate higher returns than bank fixed deposits and other small scheme investment plans.
Hence, knowing the time and investment purpose are both important to use an appropriate short-term financial instrument. As a thumb rule, the nearer you are to your financial goal, the more important the goals are for you and the higher allocation you require to make in instruments to achieve the goal within the time horizon.
What are the prudent short-term financial instruments you can select in India?
ULIPs (unit-linked insurance plans)
ULIP is a kind of financial option that provides two major benefits i.e., offers an assured amount through insurance and investment amount to meet your financial goals. Additionally, such investment options provide high flexibility in terms of making their premium payment and even allow you to select the investment option depending on your financial goal and situation.
Through fixed deposits, you easily can form a corpus to meet your short-term financial goals. Many small finance banks and NBFCs tend to offer high FD rates than private and public banks. However, before availing an FD, ensure to go through the terms and conditions.
This is one of the best investment instruments for the short term. You as an investor can use this instrument to save money to meet your short-term requirements. The most crucial feature of recurring deposits (RD) is that they are secured and offer satisfactory returns on investments.
You as a retail investor can basically consider investing your money in debt funds that invest your money in securities like commercial papers, government bonds, corporate bonds, treasury bills and others. This is looked upon as a prudent short-term investment option that you can consider opting in India if you hold a slightly higher risk appetite level.
The next crucial financial instrument for making your short-term investments are treasury securities. It is because such securities offer great security, liquidity, and high returns than bank fixed deposits. Usually, the maturity period for such securities ranges anywhere between 91 days and 365 days.
In the case you have good market knowledge and have a high-risk tolerance level, then you can consider investing in commodities, shares, and derivatives. Based on your financial goals, a long-term or short-term investment can be performed.
A savings account is a popular and the most accessible short-term investment option. They can be accessed easily and usually offer an interest rate of usually up to 4 per cent per annum. A few banks may offer a higher interest rate on savings accounts.
So, just like your long-term financial goals, for your short-term financial goals also, you must ensure to use an online investment calculator to compute the monthly investments that you must make in the short-term option to meet your financial goal within the deadline.