5 Short-Term Investment Options for Indian Investors

A savings account is a simple and secure financial tool that helps individuals save money while earning a nominal interest on their balance. It is one of the most basic and popular short-term investment options due to its convenience and safety. Here’s how it works and why it’s beneficial:

How Does a Savings Account Work?

• You deposit money into the account, which the bank keeps safe and secure.
• The bank pays you a nominal interest rate on your balance, typically calculated daily or monthly.
• Funds can be accessed anytime through ATMs, online banking, or bank branches, making it highly flexible for managing immediate financial needs.

Benefits of a Savings Account 

• Easy access to funds: Savings accounts provide instant liquidity, making them preferable for short-term investments and meeting day-to-day expenses.

• Provides a safe place with minimal risk: Your money is protected, and the account is insured up to a certain limit, ensuring complete safety.

• Earns a nominal interest rate on the balance: While not a high-yield short-term investment, it offers consistent returns and keeps your money active.

For those wondering where to invest money for short-term needs, a savings account may be a good choice. Though it may not offer short-term investments with high returns, it may be suitable to preserve liquidity and manage emergencies effectively.

A fixed deposit (FD) is one of the most popular short-term investment options, offering guaranteed returns without any exposure to market risks. It allows individuals to deposit a lumpsum with a bank or financial institution for a fixed tenure in exchange for higher interest rates compared to savings accounts.

How Does a Fixed Deposit Work?

• You invest a specific amount for a predetermined period, ranging from a few days to several years, based on your financial goals.
• The bank locks in the funds for the chosen tenure, paying a fixed interest rate on the deposit.
• At maturity, you receive the principal amount along with the accumulated interest.
• You can also choose periodic payouts if you need regular income during the tenure.

Benefits of Fixed Deposits

• Guaranteed returns with no market risk: Fixed deposits are a safe and secure short-term investment plan, ensuring predictable returns regardless of market fluctuations.

• Flexible tenures: You can select a tenure based on your needs, making FDs a suitable option for short-term investments or long-term goals.

• Higher interest rates compared to savings accounts: FDs typically offer better returns, making them one of the short-term investment plans with high returns in India.

• Option for periodic payouts for steady income: You can opt for monthly or quarterly interest payouts, providing a regular income stream.

For those wondering where to invest money for the short term with minimal risk, fixed deposits are an accessible option. While they may not always qualify as high-yield short-term investments, they can be preferable for individuals seeking safety, flexibility, and guaranteed returns.

A liquid fund is a type of short-term investment option that primarily invests in short-term money market instruments like treasury bills, commercial papers, and term deposits with a maturity period of 91 days. It is designed to offer easy liquidity and low risk, making it better suitable for investors looking to park their surplus cash temporarily while earning potentially better returns than a savings account.

How Do Liquid Funds Work?

Liquid funds invest in low-risk, short-term debt instruments with a maturity of up to 91 days. They offer daily liquidity, meaning investors can redeem their investments quickly, usually within 1-2 business days. These funds are managed by professional fund managers who aim to optimise returns while maintaining safety.

Learn more about what are liquid funds and how they work!

Benefits of Liquid Funds

• Higher returns compared to savings accounts: Liquid funds typically aim to provide better returns than traditional savings accounts, making them an attractive option for short-term investments with high returns.

• Highly Liquid: With quick redemption options, liquid funds offer high liquidity, allowing investors to access their funds when needed.

• Low-Risk: Since they invest in government securities and highly-rated debt instruments, liquid funds are considered low-risk, making them a safe short-term investment plan.

• Professional Management: Experienced fund managers handle the investments, aiming to provide optimal returns while managing risks efficiently.

• Suitable for Parking Surplus Cash Temporarily: Liquid funds may be preferable for those looking to park surplus cash temporarily without locking it into long-term investments like fixed deposits.

For those wondering where to invest money for the short term or seeking short-term investment options with high returns potential, liquid funds offer a convenient, low-risk solution.

An overnight fund is a type of mutual fund that invests in securities maturing in just one day, making it a potentially secure short-term investment option. These funds are specifically designed to offer high liquidity with minimal risk, making them better suited for investors seeking a safe and efficient way to park surplus money for very short durations.

How Do Overnight Funds Work?

• The fund manager invests in overnight securities, such as treasury bills or commercial papers, which mature the next day.
• At the end of each trading day, the returns from these securities are reinvested or distributed to investors.
• The short tenure of investments ensures that the fund is not affected by market volatility or interest rate fluctuations.

Benefits of Overnight Funds

• High Liquidity: Overnight funds provide easy access to your money, making them suitable for managing cash flow or emergency needs.

• Minimal Interest Rate and Credit Risk: These funds invest in low-risk securities with short maturities, aiming for the safety of principal and predictable returns.

• Quick Settlement Process for Hassle-Free Withdrawals: Redemption requests are processed quickly, often within one business day, offering convenience for investors who need immediate access to funds.

For those wondering where to invest money for the short term with low risk and high liquidity, overnight funds may be a suitable choice. While they may not qualify as short-term investments with high returns, they provide a flexible option for meeting immediate financial goals or parking idle funds securely.

A money market mutual fund is a type of short-term investment option that invests in highly liquid, low-risk instruments like treasury bills, commercial papers, and certificates of deposit. These funds aim to offer a safe place to park your money for a short period while providing potentially higher returns than traditional savings accounts or fixed deposits. They may be better suited for investors looking for high yield short-term investments without significant risk exposure.

How Do Money Market Mutual Funds Work?

• Money market mutual funds invest in short-term debt securities with short maturities, typically ranging from a few days to a year.
• These funds are designed to maintain a consistent net asset value (NAV), meaning the price of the fund typically remains at ₹1 per unit.
• Investors can redeem their investments quickly, typically within one business day, ensuring liquidity.

Benefits of Money Market Mutual Funds

• Higher Returns Compared to Savings Accounts and FDs: Money market mutual funds aim to offer better returns than savings accounts and fixed deposits, making them an attractive option for short-term investments with high returns potential.

• A Diversified Portfolio: These funds invest in a range of short-term debt instruments, ensuring diversification and reducing the risk associated with any single investment.

• Low Risk: Since money market funds invest in highly rated, short-term debt instruments, they are considered low-risk, making them one of the safest short-term investment plans.

• High Liquidity: Money market mutual funds offer high liquidity, allowing you to quickly access your funds when needed. This makes them a preferable option to invest money for short-term needs.

• Professionally Managed: These funds are managed by experienced professionals who make investment decisions to potentially maximise returns while minimising risk.

For those seeking short-term investment options with high returns but low risk, a money market mutual fund may be a suitable choice. It offers a balance of safety, liquidity, and returns for short-term financial goals.

• Short-term investment options typically range from a few months to a couple of years, focusing on safety, liquidity, and moderate returns. They can be good for immediate financial goals or parking surplus funds.
• Options like fixed deposits, recurring deposits, and modern alternatives like liquid funds, gold ETFs, and money market funds cater to diverse needs. High-yield short-term investments like corporate deposits and ultra-short duration funds aim to provide attractive returns with a moderate level of risk.
• Savings accounts offer instant liquidity, minimal risk, and regular interest. While they are safe for short-term investments, they don’t offer high returns compared to other options.
• Fixed deposits offer guaranteed returns with no market risk and higher interest rates than savings accounts. They come with flexible tenures and periodic payout options, potentially making them a suitable choice for short-term investments, but not the highest yield option.
• Liquid funds provide higher returns compared to savings accounts and are highly liquid with low risk. Managed by professionals, they are suitable for parking surplus cash temporarily, offering both safety and flexibility for short-term investment goals.
• Overnight funds invest in securities that mature in one day, offering high liquidity and minimal risk. They may be better suited for those needing immediate access to funds and can provide short-term returns without significant risk.
• Money market mutual funds offer higher returns than savings accounts and fixed deposits, making them a suitable choice for high-yield short-term investments. They are diversified, low-risk, and highly liquid, professionally managed aiming for optimal returns while maintaining relative safety.