Top Short Term Investment Options for December 201630 November, 2016
In Monexo’s attempt to make every investor who visits our site an informed investor we bring to you this blog where we talk about the different types of short-term investment option and the pros and cons attached to each one of them.What are short-term investments?
Short-term investments, as the term suggests are the kind of investments where capital is locked in for a relatively short period of time with the main objective of preserving capital and earning return on the same. Short-term investments typically offer a low return, but access to the capital is relatively easy. The average term of short-term investments is not more than three years.
Let us look at the different kinds of short-term investments, such as fixed deposits, savings account investments, investments in gold, National Savings Certificates, Liquid Funds, Investment Bonds, Fixed Maturity Plans, Recurring Deposits, Certificate of Deposits, Short term floating rate funds, Treasury Bills and peer-to-peer investing.
Peer-to-peer lending makes for a perfect short-term investment option as it offers the quintessential elements of flexibility, high returns ranging from 13-30% and transactional ease when investing. If you are looking for short term investing peer to peer lending is a great avenue for you to consider. Periodic yields, safety of capital and flexibility of terms are what makes peer to peer lending an increasingly popular investment area. For investors on the look out for short term investing, saturated with the traditional avenues as listed above, then peer-to-peer lending is worth considering.
Read on for more on 5 Reasons to Add Peer to Peer Lending to your Investment Portfolio
Fixed Deposits are also known as Term Deposits. These are investments that are made with banks or with financial institutions. FDs provide the investor with a guaranteed and periodic rate of return. Fixed Deposits are fixed for a certain period of time and the interest rates for such investments vary for different forms of investments. The risk factor in Fixed Deposits is very minimal. This kind of investment gives a higher rate of investment than Savings Bank Accounts.
Read on for more on The best Fixed deposit interest rates offered by India’s Top Banks-April 2016 to March 2017
Savings Account Investments
A Savings bank account is obviously one where investors can park their money to save it over long periods of time. This is the most basic and common form of short term investing. In an organized economy every individual who earns money saves it in a bank in the form of deposits in a Savings Account. The features of such an investment are:
Investments in Gold
For Indians, traditional investors gold is traditionally a popular investment choice. Here are some reasons why short term investing in gold is so popular in India.
Read more about the latest changing trend in gold investments.
National Savings Certificate
The NSC is an Indian Government Savings Scheme that forms part of the Indian Postal Service savings scheme. With NSC’s there is no maximum limit for investment and there is a Tax Rebate available for NSC Savings up to Rs.1 lakh. NSC’s are specially made for salaried persons, Government Employees and other regular income groups. Another plus with NSC’s is that they can be used as collateral security against loans. The rate of interest with NSCs is set at 8%. These investments are for fixed tenures and the terms can be revisited at maturity.
These are funds where moneys are invested in money market instruments. Examples of liquid funds are certificate of deposits, treasury bills, commercial papers and term deposits. These include certificate of deposits, treasury bills, commercial papers and term deposits.
The maturity period with these kinds of deposits is usually 90 days and there is no lock in period therefore the liquidity. Liquid funds offer much higher rates of Interest than Savings or Fixed Deposit schemes and during inflationary periods the rates are even higher.
A bond is a security issued by a Company or a Financial Institution or Government. Bonds offer regular and fixed payment of interest in return for borrowed money for the bond tenure. Many types of bonds are available including Tax free bonds, Infrastructure bonds, treasury bonds and Government Bonds. A bond is basically a formal contract to repay borrowed money with interest for a fixed time period that may be yearly, half yearly, monthly etc. In this way bonds are flexible investments that usually have a defined term, or maturity, after which the bond is redeemed.
Fixed Maturity Plans
Fixed Maturity Plans are close-ended debt funds with a maturity period that may range from one month to five years. The objective in Fixed Maturity Plans is to provide steady returns over a fixed-maturity period, thereby protecting investors from market fluctuations and other variables.
Fixed Maturity Plans are usually investments that are made in certificates of deposits (CDs), commercial papers (CPs), money market instruments, highly rated securities (like 'AAA' rated corporate bonds) that are made for a defined period of time or investment tenure. This type of investment is not close ended and is therefore not liquid in nature.
Recurring Deposits are very similar to Fixed Deposits but are made for relatively smaller amounts. In this type of investing, investors can deposit a fixed amount of as low as Rs.100/- every month into this account. The maturity period for these kind of deposit ranges from 6 months to 120 months. Tax is deductible on the returns from this deposit only if the Interest exceeds Rs.10,000 per year. These deposits allow for premature withdrawals but this comes with a penalty.
Certificate of Deposits
A certificate of deposits in simple terms is a negotiable money market instrument issued for the amount deposited by an investor. A certificate of deposits is equivalent to a promissory note and is issued in a demat form or in the form of a usance promissory note. These instruments are issued in lieu of funds deposited for a specified time period. The maturity period for CDs is 7 days to 1 year.
Short Term Floating Rate Funds
These are funds that carry the investment objective to predominantly invest in short term floating rate instruments. What floating means is that, the interest rate changes depending on the inflation rate increases during the investment period.
Treasury Bills are another form of short-term investment instruments that carry a maturity period of less than one year. Treasury Bills are instruments of short-term borrowing issued by the Central Government for periods ranging from 91 days to a year. Individuals, Firms, Trusts, Institutions and banks can purchase T-Bills. There is no risk involved in this kind of investment and total transparency in dealing with Treasury Bills. The minimum amount that can be invested in Treasury Bills is Rs. 25,000/-.
To conclude, our financial experts at Monexo believe that an ideal investment portfolio is one that is diversified over different asset classes and investment instruments. While it is essential to have long-term investments in your investment bouquet, short term investments are a must to gain flexibility, calculated risk and high returns from your money.