Investment options to earn higher returns compared to bank savings account

By: |
August 07, 2021 9:44 AM

If you wish to know as to where to invest for the short term in India, there are several options available for you.

where to invest for the short term in India, Investment options, earn higher returns, bank savings account, debt fund categories,Do not compromise on safety even when parking funds for short term and also keep an eye on the taxation aspect.

Need for funds may arise anytime. Keeping this fact in mind, most people look for avenues to park money for a short duration even if the returns are lower. For meeting short-term goals and for maintaining enough cash to meet any financial exigency, you also need to have an emergency fund handy. If you wish to know as to where to invest for the short term in India, there are several options available for you. The returns may still be higher in them, than what your savings account may be offering, of around 3 per cent.

Overall, there are some investment options that carry fixed returns while in others, the returns are linked to the market and keep fluctuating. One thing that you need to ensure is that you do not choose any equity-linked investment for short-term needs. For short-term goals, always keep away from equity-backed products such as equity mutual funds or shares.

Term Deposits

Among the investment options that provide fixed returns are fixed deposits (FDs), company deposits, post office term deposits etc. You can park money in bank FD from 7 days to up to 12 months for short term needs or in the post office 1-year term deposit. Bank FD schemes may also be looked at for parking funds for goals that are around 3 years away.

Debt funds

Apart from them, there are debt fund options in which there is no assurance of returns but the funds can be accessed at short notice. The potential to generate high effective returns is there in debt funds compared to fixed-income products. Within the debt funds there are several categories, some of which suit short term needs – liquid funds, ultra-short duration funds, and money market funds.

Of the 16 debt fund categories, making the right choice is important as some of them could be more volatile than the others. Some of the debt funds that you may explore are:

Liquid fund: Here, the investment is made into debt and money market securities with maturity of the underlying securities up to 91 days.

Ultra-short duration fund: Investments are made into debt and money market instruments where the maturity of the underlying securities is between 3 months and 6 months.

Low duration fund: The investment is made into debt and money market instruments where the maturity of the underlying securities is between 6 months and 12 months.

Money market fund: The investment is made into money market instruments where the underlying securities have a maturity of up to 1 year.

Floater Fund : An open ended debt scheme predominantly investing in floating rate instruments. Curent, these funds are looking attractive as far as returns are concerned.

Medium to Long Duration Fund: Such funds have investment in Debt and Money Market instruments such that the Macaulay duration of the portfolio is between 4 –7 years

Do not compromise on safety even when parking funds for short term and also keep an eye on the taxation aspect. Remember, the funds invested in short term investments may have to be redeemed at short notice and thus know how many days will it take for the funds to hit your bank account before investing in them.

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