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Financial Planning

Short term investment options for high returns

15 September 2016
Looking to earn maximum returns in a quick and easy manner? Find out 6 investment option on how exactly you can do short term investment to get high returns.
 

Your wedding, your first home, or your first car might be two years away. But if you don’t start putting the money together now, those 2 years may turn into 5 or 10 or 15.

Related: 9 financial tips for newlyweds

Your go-to option might be a regular savings bank account but the returns these instruments offer are lower than most others, with the primary benefit being only safety.

Short-term investments are designed to provide considerable returns in a short period of time, which could be a few months or even a year. If you’re going to get married in the next two years, you’re definitely not interested in waiting forever for your money to multiply.

Here are six great short-term investment options from the vast sea of investments that you need to look into now:

1. Bank fixed deposits

Bank fixed deposits are secure investments, and you can park your money in a fixed deposit anywhere from 30 days to 10 years. While you have the option to withdraw the money before the maturity date it’s advisable to withdraw it only after because this instrument is not very liquid in nature.

For example, if you invest in a two-year fixed deposit, which yields a 10% interest rate and you decide to withdraw the funds after six months then the bank will pay you an interest rate that was valid for a six-month fixed deposit, which could be 6% at the time you had invested. Plus, if you withdraw money before the maturity date, depending on the bank, you could end up paying up to 1% of the interest charged as penalty.

A similar option is a Recurring Deposit with banks which were created to inculcate the habit of regular savings. These usually have a lower interest rate than FDs, but have the benefit of being more liquid, since withdrawals are allowed, albeit with certain penalties.  

Therefore, know what your investment horizon is before proceeding.

Related: The best apps to help you track and save money

2. Savings account

If you hate risks and you’re okay with less-than-substantial returns but need high liquidity, then consider opening a savings bank account. Different banks offer different interest rates, so that’s something you might want to keep in mind.

3. Money market accounts

Popularly known as liquid funds, money market accounts are a special category of mutual funds, which invest in several money market instruments such as term deposits, commercial papers, etc.

The underlying assets in liquid funds usually have maturity periods of less than 91 days enabling high liquidity. The tenure of a liquid fund is always less than a typical mutual fund and offers a higher interest than savings accounts.

Usually large institutions invest their money in liquid funds but as an individual investor if you want to earn above average returns and beat inflation then this is a good option.

Related: Types of mutual funds and how to start investing in them

4. Gold or silver

Have you noticed your parents love to buy gold during Diwali? Gold and silver are considered great investments for both the long term and the short term. If you are on the lookout for an uncomplicated and hassle free way to earn returns, then this is the option for you.

5. Short term debt funds

Short-term debt funds are managed conservatively with the sole aim of securing capital and providing good returns without the fear of market volatility. However, debt funds are complicated and if you really want to make money you need to understand how they work. If you wish to invest for more than a year, debt funds are more tax-efficient than bank fixed deposits.

6. Large cap mutual funds

Large cap mutual funds invest in equity or stocks of large companies to achieve good growth in a short period of time. For quick and smart returns within one to three years look at these mutual funds.

Related: ELSS Mutual Funds: High returns + tax savings (Part I)

To summarise,

Type of investment

Risk Level

Tenure for investment

Bank fixed deposits

Low-risk

Minimum of 7 days and maximum of 10 years

Recurring deposits

Low-risk

Minimum of 6 months and maximum of 10 years

Savings account

Low-risk

No tenure here

Money market account

Low-risk

As little as one day to as much as 90 days or higher

Gold or silver

Low-risk

Any

Short term debt funds

Low-risk

Anywhere from a month to six months or more depending on your goals

Large cap mutual funds

Higher risk compared to the others

Start with a minimum tenure of 3 years

 
 
 

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