As a savvy investor, you probably already know how important it is to diversify your portfolio to grow wealth. However, did you know that diversification does not only mean that you should invest in various industries? When thinking of adding new investments to your portfolio, ensure that you have a mix of short-term and long-term policies.
But, don’t policies perform better when you pick longer-term periods?
The answer to this depends entirely on your investment goals! Let’s look at a scenario to understand how choosing short-term investment options can benefit you as much as choosing long-term investments.
Anupriya has invested in life insurance as well as a retirement plan. Thus, she is already working towards her goals of securing her family in case of an unfortunate event, as well as securing her retirement. However, what about her own dreams?
Anupriya wants to buy her own house, she wants a spacious car, and she wants to be able to send her children abroad to study. Such goals are typically considered short-term investment goals, as most people aim to meet them in a few years. To be able to meet such goals, Anupriya needs to invest in short-term investment options to grow her wealth and make her dreams come true.
What are the Top 10 Short-term Investment Options in India?
Choosing an investment option over another largely depends on your goals, the premiums you are comfortable paying, as well as your risk appetite (that is, the amount of risk you are willing to take). Thus, only you can determine the “right” type of investment.
However, if you’re wondering what the top 10 short-term investment options are, then read on!
| Short-term Investment options | Estimated Yearly Returns |
|---|---|
| Recurring deposits | 6-7% |
| Government Bonds | 7% |
| Fixed deposits | 5-8% |
| Post-Office Time Deposits | 5.5 – 6.7% |
| Debt instrument | 7-11% |
| Corporate deposits | 7-8% |
| Mutual Funds | 8-13% |
| Senior Citizen Savings Scheme | 8-9% |
| ULIP | 7-9% |
| Gold ETFs | 7-8% |
*These yearly returns are based on previous market performances, and may vary from bank to bank, where applicable. | |
1. Recurring Deposits
If you have a low-risk appetite and value stability over uncertainty, then recurring deposits might be the most suitable investment option for you. A recurring deposit is an investment option offered by almost every bank in India. In this, you deposit a predetermined amount of money every month for a period of your choosing.
Recurring deposits can be ideal for people with very short-term goals in mind, as you can create an RD account for a minimum of 6 months. You can, thus, use this option and plan your life’s milestones accordingly.
For example:
Shreyas and Malvika have recently decided to have a baby. Knowing that there can be many unexpected expenses when you have an infant in the house, Shreyas creates an RD account with a term period of 9 months. His bank offers him an interest rate of 6%.
Premium paid | Total term period | Total amount at maturity |
|---|---|---|
INR 10,000 | 9 months | INR 92, 269 |
Shreyas now sleeps more soundly at night, as he knows he can handle random expenses once the baby is born.
2. Government Bonds
Government bonds, as the name suggests, are issued by the government in exchange for funds. The government typically uses the funds to develop infrastructure or implement policies, while investors receive their wealth at the time of maturity. Presently, the interest rate for government bonds is 7%.
Note that there are different types of government bonds that you can choose from:
- Inflation-indexed Bonds – such bonds offer interests that are accorded with inflation rates. As a result, they protect you from inflation, helping you grow your wealth in a meaningful way.
- Sovereign Gold Bonds – such bonds are linked with gold, allowing investors to grow their wealth in tandem with gold prices rising. However, there are certain RBI regulations to keep in mind while investing in sovereign gold bonds. For instance, Hindu Undivided Families, as well as Individuals, are only allowed to hold 4-kgs of gold in a single financial year. However, a trust is allowed to hold 20-kgs in a financial year.
- Floating Rate Bonds – such bonds have fluctuating rates of interest that are changed at predetermined intervals. For instance, your bond may be subject to changing interest rates every 6 months throughout your term period.
- Fixed-rate Bonds – such bonds are ideal for investors with a low-risk appetite as they have a fixed rate of interest that does not change even when there are market fluctuations.
3. Fixed Deposits
A fixed deposit is an investment instrument that is not linked to market returns, making it ideal for investors who prefer ‘safer’ investment avenues. You can deposit as little as INR 25,000 in your FD account (although this may vary from bank to bank), and a maximum of 1.5 lakhs per financial year. Additionally, your term period can range between 7 days and 5 years.
Note that the interest rate can range from 5-8%, as different banks offer different rates.
| Investment Amount | Total Term Period | Interest Rate | Total Amount at Maturity |
|---|---|---|---|
1,00,000 INR | 5 years | 6.5% | 1,38,042 INR |
4. Post Office Time Deposits
Post Office Time Deposits are classified as small savings schemes, and work in a slightly similar way to fixed deposit accounts, albeit with differences. The lock-in period, for starters, ranges between 1-5 years. Additionally, the interest rates range between 5.5 – 6.7%.
| Investment Amount | Total Term Period | Interest Rate | Total Amount at Maturity |
|---|---|---|---|
| 1,00,000 INR | 5 years | 6.7% | 1,39,407 INR |
5. Debt Instrument
A debt instrument is a popular investment avenue, based on assets that belong to the debt market. These can include corporate bonds, government bonds, commercial papers, debentures, and so on.
The interest you can gain by investing in debt instruments depends entirely on the kind of investment you are making. However, in general, the interest can range from 7-11%.
6. Corporate Deposits
Corporate deposits, also known as corporate fixed deposits or corporate FDs, are another short-term investment option in India. The interest rates, when compared with traditional bank FDs, are higher, ranging between 7-8%.
| Investment Amount | Total Term Period | Interest Rate | Total Amount at Maturity |
|---|---|---|---|
| 1,00,000 INR | 5 years | 8% | 148,595 INR |
7. Mutual Funds
Mutual funds are ideal short-term investment options for people with a medium to high-risk appetite and high yield expectations. Your funds are typically split between the debt and equity market when you invest in mutual funds, and, as the investor, you can determine the ratio as per your comfort levels.
| Investment Amount per Month | Total Term Period | Interest Rate | Total Amount at Maturity |
|---|---|---|---|
| 5,000 INR | 5 years | 13% | 4,19,000 INR |
| 10,000 INR | 5 years | 13% | 8,39,000 INR |
8. Senior Citizen Savings Scheme
Even if you have completed all your responsibilities, and have secured your parents’ retirement, it is important to always save for a rainy day. A Senior Citizen Savings Scheme allows your parents to save and grow their wealth. This government-backed savings scheme matures after 5 years. Presently, the interest rate for SCSSs is set at 7.4%
| Investment Amount | Total Term Period | Interest Rate | Total Amount at Maturity |
|---|---|---|---|
| 1,00,000 INR | 5 years | 7.4% | 1,37,000 INR |
9. ULIPs
ULIPs, or Unit Linked Insurance Plans, offer the dual benefits of wealth creation and life insurance. The term period can range between 3-5 years, letting you meet your short-term goals easily. The following are the interest rates offered by different types of ULIPs:
| Fund Name | Fund Type | Fund Value (Cr) | Growth in % (in 3 years) | Growth in % (in 5 years) |
|---|---|---|---|---|
| Debt fund | Moderate | 130 | 8.5 | 8.43 |
| Secure Fund | Low-Risk | 33 | 3.36 | 4.6 |
| Blue Chip Equity Fund | High-Risk | 122 | 2.56 | 5.91 |
| Stable Fund | Moderate | 20 | 5.26 | 7.34 |
| Accelerator Fund | High-Risk | 194 | 5.19 | 7.45 |
| Opportunity Fund | High-Risk | 93 | 2.38 | N/A |
10. Gold ETFs
Exchange-Traded Funds, or ETFs, are good investment options for those who want their funds to grow in tandem with a specific industry. Such funds track the growth of stocks, bonds, or commodities and are traded on the stock exchange. You can invest in gold ETFs for a minimum of 1 year, or for a longer-term, as per your convenience.
The interest rate offered by Gold ETFs depends entirely on the funds you pick, however, in general, you can expect interest rates between 19-27.89% during the first year, and 7.35-8.38% during a 5-year investment. Note that these rates have been determined based on the performance of top Gold ETFs.
| Top-rated Gold ETFs in India | AUM (In Crore) | 1 Year Return (In %) | 3 Year Returns (In %) | 5 Year Returns (In %) |
|---|---|---|---|---|
| Nippon Gold ETF | 2290.17 | 27.81 | 11.33 | 8.38 |
| SBI Gold ETF | 626.71 | 27.43 | 11.08 | 8.16 |
| HDFC Gold Exchange Traded Fund | 615.09 | 26.53 | 11.29 | 8.22 |
| UTI Gold Exchange Traded Fund | 422.02 | 26.99 | 11.25 | 8.33 |
| Kotak Gold ETF | 355.08 | 27.35 | 11.16 | 8.18 |
| Axis Gold ETF | 108.84 | 27.84 | 11.29 | 7.73 |
| ICICI Prudential Gold ETF | 101.47 | 27.23 | 10.87 | 8.02 |
| Birla Sun Life Gold ETF | 79.93 | 27.4 | 11.16 | 8.27 |
| IDBI Gold Exchange Traded Fund | 60.18 | 27.15 | 11.6 | 8.57 |
| IDBI Gold ETF | 60.18 | 27.15 | 11.6 | 8.57 |
| Invesco India Gold Exchange Traded Fund | 36.6 | 27.61 | 11.25 | 8.28 |
| Canara Robeco Gold Exchange Traded Fund | 35.84 | 19.28 | 6.91 | 7.15 |
| Quantum Gold Fund | 14.37 | 27.89 | 11.15 | 8.15 |
These short-term investments can help you grow your wealth, meet your investment goals, and make your dreams come true. Always choose an investment avenue based on your risk appetite and investment goals to prevent any disappointments upon maturity. Additionally, if you are looking to diversify your portfolio, ensure that your short-term investments vary in terms of chosen lock-in periods, and industries.