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8 Short-Term Investment Plans with Higher Returns

Investing is a crucial part of financial planning and wealth management. While long-term investments are essential for securing your financial future, short-term investments can help you achieve specific financial goals in the near term. In India, there are various short-term investment plans that offer the potential for high returns. In this article, we will explore some of India’s best short-term investment plans. 

What are Short-Term Investments?

The goal of short-term investments is to yield significant profits in a short amount of time—a few months or perhaps a year—through investment. These plans are mostly intended to cover anticipated expenses in the near future. The majority of investors that lean more towards short-term investments aren’t particularly interested in waiting years to see their money compound exponentially. Rather, they seek expeditious and efficacious outcomes. Short-term investing plans save the day in this situation.

As opposed to long-term investment options, which typically yield large outcomes, short-term investment plans allow one to expect the maximum returns necessary to fulfil their financial objectives. Because short-term investment plans have fewer dangers, experienced investors frequently place them highly on their popularity rankings.

Here is the list of 8 best short-term investment plans with high returns in India in 2023

1. Recurring Deposits

A Recurring Deposit (RD) account can be opened for as little as six months or as many as ten years in increments of three months.

  • Liquidity: A recurrent deposit plan typically has a one-month minimum lock-in period. Only the principal amount is paid to depositors in the event that the account is closed early within a month; interest is not paid. 
  • Returns: The interest rate on bank FDs and recurring deposit accounts is the same, making them among the greatest short-term investment options. Currently, the interest rate that applies is 6.5% annually for terms longer than 12 months.  As of the initial deposition date, the interest will be applicable. Before making an investment decision, it is advised to examine the FD returns using the FD calculator online tool.
  • Taxation: The interest received on the invested amount is included in income and subject to tax at the rate determined by the income slab. If the interest earned on these short-term investment plans exceeds Rs. 10,000, TDS is withheld.

2. Money Market Account

Often referred to as liquid funds, money market accounts are a fantastic short-term investing choice since they offer you both respectable yields and capital security. These have no lock-in period, have a maximum maturity date of 91 days, and are the least risky and most liquid mutual funds available. A money market account may be opened for a period of time shorter than thirteen months.

  • Liquidity: High liquidity and speedy redemption are two features of this short-term investment plan alternative.
  • Returns: Money market fund returns are neither fixed nor guaranteed. MMF currently provides an annual interest rate of 7%.  The investors should first invest after matching the maturities of their investment horizon with the other investment securities of these funds in order to get the best results.
  • Taxation: Under this short-term investment plan, the individual’s income is increased by the profit gained on the invested amount, and they are subject to the appropriate taxes. Nevertheless, a 20% post-indexation tax is applied to the profit on an investment held for longer than 36 months.

Also Read: Difference between Money Market and Capital Market

3. Debt Instrument 

Another excellent short-term investment strategy is using debt instruments, particularly for those who are risk averse. Debt mutual funds offer steady returns without the risk of market fluctuations, making them a safe option for investors looking to secure wealth. With returns as high as 10.5%, this is a wise option for savings with a short duration.

Tenure: There are three categories for the tenure of debt funds under short-term investment plans.

  • Liquid Fund: A liquid fund is a fund option where investments are made in debt and money market securities, with a maximum maturity of 91 days.
  • Ultra-short-duration fund: In this fund choice, funds are invested for a period of three to six months in money market and debt securities.
  • Low duration fund: In this fund choice, funds are invested for a term of six to twelve months in money market and debt securities.

Liquidity: High levels of investment liquidity are offered by liquid debt funds. In comparison to a savings account, the liquid debt fund offers a maximum maturity of 91 days and yields better profits.

Returns: Debt funds are regarded as among the greatest short-term investment strategies since they provide investors with consistent returns at a minimal risk. Right now, investment interest rates from debt funds range from 7 to 9 per cent.

Taxation: Debt funds are subject to capital gain tax. For a three-year period, capital gains made on a fund are subject to the short-term capital gain tax (STCG). Capital gains made on a fund that is held for more than three years are subject to long-term capital gain tax.

4. Fixed Deposits at Banks

Another name for fixed deposits is short-term investments, which are savings accounts that allow a person to deposit a lump sum of money into a bank for a predetermined amount of time. One of the safest options for short-term investments is the fixed deposit scheme, which offers guaranteed returns and a fixed rate of return on investment.

  • Tenure: A fixed deposit account can be opened for as little as seven days, and it can be opened for as long as ten years. This is one of the safest short-term investment plans. Upon maturity, deposits can be renewed and reinvested.
  • Liquidity: The fixed deposit plan controls reinvestment risk in addition to providing excellent liquidity on investments.
  • Returns: At the conclusion of the fund term, returns on investments made into a fixed deposit account are guaranteed at a fixed interest rate. For investments lasting longer than a year, fixed deposits currently offer interest rates between 8% and 9%. Even in the event of market volatility, the interest rate on fixed deposit programmes remains constant.
  • Taxation: FD is subject to a high-income tax rate of up to 30%, depending on the individual’s income head. The accumulated interest is subject to the tax as well. Investors cannot deduct any taxes from fixed deposits.

5. Post Office Time Deposits

Known by post office fixed deposits, these are among the safest and best options for short-term investments with guaranteed returns for investors. India Post runs the programme, which is highly well-liked in the country’s rural and isolated areas.

  • Tenure: A post office time deposit plan may be opened for one, two, three, or five years.
  • Liquidity: Under the post office programme, interest is paid annually on the deposited sum. Premature withdrawals from the post office plan are not permitted before the six-month period has passed.
  • Returns: The following post office FD return rate is available for post office time deposit accounts.
  • Taxation: The interest earned on the deposited amount is included in the individual’s income and is subject to taxation based on the individual’s income tax slab rate. 

6. Large-cap Mutual Funds

Large-cap mutual funds are short-term investment plans that invest carefully in large-cap stocks of companies in order to generate significant growth in a shorter amount of time. Within a year to three years of investment duration, these fantastic little investment programmes can provide you with swift and astute profits.

  • Tenure: A large-cap mutual fund investment may be made for a period of three to five years.
  • Liquidity: Investors should expect significant returns on their investments in large-cap mutual fund schemes, which also offer great liquidity.
  • Returns: Large-cap mutual fund investments are a safe short-term investment option with low risk and a high return of 8%–13%.
  • Taxation: Debt funds are subject to capital gain tax. For a three-year period, capital gains made on a fund are subject to the short-term capital gain tax (STCG). Capital gains made on a fund that is held for more than three years are subject to long-term capital gain tax.

You may also like: What are Capital Gain Bonds?

7. Stock Market /Derivatives

Derivatives, shares, and commodities are ideal options for those with a high tolerance for risk and solid market understanding. This investment can be made for a short or lengthy period of time, based on the investor’s financial goals.

8. Investments in NCDs/ Corporate or Company Deposits

NCDs, or corporation deposits, are the last little investment plan on our list, but they’re definitely not the least. You can choose a secured NCD (non-convertible debentures) under this scheme to protect your investment. It also provides appealing interest rates, which range from 9% to 12%.

The Bottom Line
If an investment meets two fundamental criteria, it can be classified as a short-term investment. Firstly, it offers liquidity. Second, the investment should be done for a meagre 12-month duration. Another bond that falls into this category is a short-term investment plan; it matures within a set period of time.

Marketable equity assets are easily traded as liquid funds and are regarded as short-term investments. Investment plans with a short maturity period—less than a year—are designated as such. Treasury bills, government bonds, money market accounts, high-yield savings accounts, and other high-quality, highly liquid assets are some of the most well-liked short-term investment options.