An investment option with a lock-in period of twelve months to three years is known as a short term investment. If you do not wish to lock in your money for a long duration, you can opt for short term investment alternatives to grow your wealth. Short-term plans are gaining popularity among the new generation of earners with shorter durations and higher returns.
However, opting for short term investment plans calls for a careful assessment of the risk levels involved. Choose a plan with healthy returns and lower risks for getting the most out of your investment. Here’s a look at the top high-return investment plans in India in the short term –
- Liquid Funds
Liquid funds refer to debt mutual funds that are highly open-ended income schemes, which invest in short-term fixed-interest generating money market instruments. These funds offer liquidity and attractive returns. However, investing only a portion of your savings in liquid funds is advisable due to tax implications.
- Short-term & Ultra Short-Term Funds
Debt mutual funds with a longer maturity period, usually 90 days to 3 years, are short-term and ultra-short-term funds. These investment options have longer tenors and protect your funds against reductions in investment rates. However, keep in mind that these funds are subject to market volatility.
- Equity Linked Saving Schemes (ELSS)
Equity Linked Saving Schemes or ELSS are tax-free investment options that invest up to 60% in equities. ELSS works with a lock-in period of 3 years for better investment growth; after that, you are free to redeem the funds. At the end of the lock-in period, you may redeem or sell based on your objective for investment and the returns you are getting.
- Fixed Maturity Plans (FMPs)
FMPs invest your money in debt or money-market instruments with the same maturity period as your investment plan. For example, a fixed maturity plan with a three-year tenure will invest in debt instruments that expire at the 3-year mark. Even though FMPs offer low liquidity, towards the end of the financial year, Fixed Maturity Plans are the most sought after investment options – due to the greater tax advantages they offer.
- Peer-to-Peer Lending
Peer-to-peer lending platforms are crowd-funded investment models, similar to the community lending custom known as chit funds. Peer-to-peer lending platform in India are gaining popularity as lucrative investment options. In this investment model, the higher the borrowing, the higher the returns at term. In this digital form, peer-to-peer lending has become accessible and convenient for everyone.
How to Evaluate the Best Investment Plans?
To understand which short-term investment alternative is best for you, ask the following objective questions before you choose an investment plan –
- What is my financial goal?
- Is a short-term investment the right choice for me?
- What is the ideal duration for my investment?
- How much risk am I willing to take?
- What are the tax implications of this investment?
- What is the sum of money I can expect to accumulate at the end of the tenure?
- Is this the right fund to invest in?
How to Research Before Investing in Short-term Plans
When researching the investment options for your hard-earned money, here are some essential facts to delve into –
- Asset Management Company – Pedigree, credibility, compliance, process and ability to retain top management and talent.
- Fund Manager – Experience, reputation, performance and continuity record
- Fund size & recent AUM growth
- Historical performance of the funds
- Risk-adjusted returns and other statistical ratios
As an investor, you should look for a balance between the returns and risks involved in the investment to protect your wealth. When choosing a short-term investment, make sure to ladder your investments to gain liquidity as your deposits mature at equal intervals. Be mindful of the taxation aspect and chart out your financial goals accordingly. Finally, don’t be afraid to explore newer avenues of investment from time to time. To know more about peer-to-peer lending, check out this website.
Aatish Khanna works with the Content Marketing team at Money Club – a digital chit fund platform that makes saving, borrowing, and investing your money more efficient. He writes on topics to help his readers understand processes so they can make better financial decisions. He’s the go-to person that his family, friends, and colleagues turn to for all their money matters. He loves to play board games and aspires to one day build his one finance-related board game and app.