Investment has become essential, and based on requirements, investments should be broken down as to whether to invest for the short-term or long-term. Based on the future cash requirements, investments can be planned.

 What is Short-term Investment?

Investments done for or within 05 years are Short-term investments. Short-term investments can be liquidated easily into cash whenever the money in the short-term is required. Short-term investments provide guaranteed returns and are safe to invest. Short-term investments are also termed temporary investments and they are highly liquid funds.

Short-term investments are those that are converted into cash in one year. It is not mandatory to stick to the investment termed years. Such investments hold high quality as they block unused funds and also provide returns at maturity. 

 Features of short-term investments

Short-term investments are considered one of the best options to start saving. It provides many advantages without any boundaries.

●  Undefined maturity period:

Short-term investments are generally those funds invested for 1 to 5 years. It does not have any maturity period, if the requirements for cash emerge then the investor can liquidate the funds easily and will get the return as per the terms and conditions.

●  For partial or complete withdrawals there is no lock-in period:

Short-term investments did not bind investors with a lock-in period, after 06 months of investing if required one can liquid funds based on requirements. Investors can also liquidate a partial amount of investments.

●  Steady return on Investments

Short-term investments provide a steady return on the investments. Short-term returns might be less, compared to other investments but they provide guaranteed returns on investment.

●  Minimal or no risk

Short-term investments are considered risk-free investments as they include minimal or no risk. They are also known as safe investments.

 Benefits of short-term investments

●  Investors can get liability in income tax for five years in short-term investments.

●  Instead of paying tax together, in short-term investments payable income tax is divided in years.

●  Short-term investments are also useful for the future of the family.

●  Short-term investments have higher returns with the passing of maturity.

●  Short-term are risk-free investments.

 What is the time frame of short-term investments?

Short-term investments range from 1-5 years. Investors can invest in short-term investments like FDs, CDs, treasury bills, savings accounts and bonds. These investments do not have any lock-in period.

Difference between Short-term and Long-term Investment

Short-term Investments	Long-term Investments
Funds can be liquidated easily in short-term investments	Funds must be held for at least one year in long-term investments
Funds can invested for 1 to 5 years	Funds can invested for more than 10 years
Short-term investments have No lock-in period	Long-term investments have a lock-in period
Short-term investment gives a Slow and steady return	Long-term investment can give higher returns
Short-term investments are considered safe investment	Long-term investments are a bit risky

Types of short-term investment

While opting to park your short-term investment, there are many options available like savings accounts, treasuries, FDs, CDs, RDs and many more, according to suitability and terms and conditions one can opt for any short-term investments.

1. Savings Accounts

Savings accounts are the most useable and common savings investment around people, savings accounts offer full access to liquid funds anywhere at any time. In terms of return savings accounts give a 03% interest rate. However, rates vary as per banks’ terms and conditions. Saving accounts is suitable if constant cash is required.

2. Fixed Deposit

Fixed deposits are considered to be the safest investments. Through FDs, one can block their funds for a specific period and get the interest at the time of maturity. FDs contain zero risk. If the interest received from FD crosses 10,000 INR then TDS is deducted and one can claim the TDS at the time of return filing.

3. Treasury Securities

Treasury bills also known as T-bills are RBI-generated short-term government investment tradeable bills. T-bills are issued for 91, 184 and 364 days. It is a highly secured investment and funds are redeemable within a year. T-bills are also tradeable to liquid funds. However, they are issued at a discounted price and redeemed at face value. The difference is considered as an interest. 

4. Recurring Deposits

If you are up to invest partially and not in one go, then recurring deposit investments are the best short-term investments. In recurring deposits, you can invest monthly instead of investing lump sump at one time. Recurring deposits are for 6 months to 10 years and the interest received in deposits is taxable.

5. Corporate Deposits

Corporate deposits work like fixed deposits, but the only difference is that CDs are risky compared to FDs and CDs are raised by companies. However, the interest rate on CDs is higher than on FDs. However, if you withdraw your CDs before maturity, they will charge a penalty. One should know the financial position of the company before investing in CDs. If the company is going through a financial crisis, one cannot invest in debt. 

6. National Savings Certificate

National Savings Certificates are provided by the Post office which is another safest short-term investment of 5 years. During the tenure of certificates, you can even trade them with other investors if you want to liquidate funds. Interest will be assigned only on the maturity and it is taxable and can be claimed under section 80c of the Income Tax Act.

7. Liquid funds

Liquid funds act as mutual funds, on behalf of investors an agent will invest in government securities and bonds. However, liquid funds can be withdrawn at any moment but the process of getting funds liquidated takes 2 to 3 days.

8. Mutual funds

Mutual funds are risky investments but they work as arbitrage funds where you can invest at the current price of the product knowing that the price will be higher in the future. This will lead to higher interest, but it is safe to invest only when you have complete knowledge of the market. Money market funds are also highly liquid funds and are considered the best option to invest in the short term.

Interest Rates of Short-term Investment

Name of Investment	Interest Rates
1) Savings Account	Starting from 3.50%
2) Fixed Deposits	Starting from 6%
3) Corporate Deposits	Starting from 7.34%
4) Liquid funds	Starting from 3%
5) Treasury bills	–
6) Recurring Deposits	Starting from 2.75%
7) National Saving Certificate	Starting 7.7% pa

Final words

Short-term investment options are best if you are looking for future financial goals. If you are looking for steady and safe investments, kindly opt for short-term investments. They give you timely interest and security for you and your family. Interest on short-term investments might be low, but they are safe and will secure your money. You can opt for any short-term investments in which the funds, that invest should be liquidated in no time.   

 FAQs

1) What is the duration for Short-term investments?

–   Generally, short-term investment tenure is for 1 – 5 years and in some cases, it is up to 10 years.

2) Which form of investment is a safer, short or long-term investment?

–   Short-term investments are safer compared to long-term investments. Short-term Investments are highly liquidated and can give direct funds offering.

3) Which short-term investment interests are taxable?

–   Fixed deposits, NSC and Corporate deposit interests are taxable.

4) What is the duration for long-term investments?

–   Generally, long-term investment tenure is for more than ten years.

5) Do short-term investments provide steady interest?

–   Yes, short-term investments provide steady interest but interest rates depend on where you have invested.