When people talk about investing and achieving financial goals, they often just focus on the advantages of investing over a long period. The emphasis, in that case, is on the benefits of investing, like compounding, cost averaging and more that only apply to long-term goals. What about short-term investment plans and their perks?
In this article, let’s look at the best short investment plans and their place in the bigger picture of your investment journey, goals and financial risk profile. The following are your options when it comes to short-term savings plans.
Fixed deposits with your bank can be a suitable short-term investment option. They tend to offer a reasonable rate of return with returns that aren’t impacted by market volatility.
Here are a few features of fixed deposits:
- Fixed returns for different tenures of fixed deposits
- Flexible tenure that suits your short-term goals
- Premature withdrawals in an emergency with a penalty
- Interest earned above ₹10,000 is taxable
- Available with banks, NBFCs like Fi Money and post offices (known there as term deposits)
Safety, flexibility, ease of operation and good returns have ensured that fixed deposits remain ever-popular with investors.
Everyone has short-term goals like vacations or buying gadget shopping, but that usually puts immense pressure on our pre-decided budgets. With the Fi Money app, you can reach these goals with regular and small savings. You can use the feature called Jars in the Fi Money app to save your money with fixed deposits.
With a fixed deposit, you invest money once as a lump sum amount. However, you probably earn money at periodic intervals. Also, there is no scope for regular investing. What if you want to invest a fixed amount every month?
Recurring deposits are short-term savings plans that allow you to do so. You can open a recurring deposit at your bank or a local financial institution (NBFC). The recurring deposit scheme run by the post office is also popular. You can choose a tenure from six months to ten years.
Recurring deposits can offer all the benefits of fixed deposits, such as safety and ease of investing, along with the advantage of distributed regular investing.
It is important to remember that the interest earned on recurring deposits is taxable.
Debt mutual funds invest primarily in the debt market. The debt market has debt instruments like government bonds, corporate bonds, treasury bills, commercial paper, and other similar instruments.
There are a variety of debt mutual funds available in India, with various tenures and underlying asset proportions. These funds are relatively less risky than their equity counterparts and can offer stable short-term returns.
You can also invest in mutual funds using your Fi-Federal account. You can even start a Systematic Investment Plan or SIP using FIT rules. FIT rules are simple to set up. You can set a rule like, “Invest ₹15,000 in a money market mutual fund on the fifth of every month”, and that is it. It is that simple!
Commodity mutual funds invest in commodities like gold and silver. They have lesser volatility than equities & offer an alternative to investing in physical gold/silver. They track the prices of their underlying commodities and provide returns that mirror them without the hassles of holding them in physical form.
Since these funds do not require active management and are Exchange Traded Funds (ETFs) or Funds of Funds (FoFs), the total expense ratio (TER) of these funds is lower than that of equity funds.
Do you want to invest in gold funds? The Fi Money app offers you a host of investment research materials to help you make informed investment decisions. You can easily set up your SIP using the FIT rules and keep moving towards your short-term savings plan.
Short-term investment plans can be great for achieving short-term goals. But have you ever searched for short-term investment plans with high returns? Choosing investments in such a manner might not help you achieve your goals.
It is important to choose a short-term investment plan that can be suitable for your specific goal and risk profile. Let’s see how you can do that.
Analysing your risk profile is understanding how much risk you are comfortable with. You can list your financial strengths, weaknesses, opportunities and threats with the following SWOT metrics.
This SWOT analysis of your financial and life situation is the platform for your investment plan. Next, let’s see how to make SMART financial goals.
The whole point of investing is to fulfil your future goals. You can say that investments are your present self’s way of making your future self more fulfilled by achieving goals on time.
While listing your goals, it’s better to ensure that they are SMART (Specific, Measurable, Achievable, Relevant and Time-bound). Otherwise, they might be difficult to achieve.
Now, divide your goals into short-term, medium-term, and long-term goals.
Short-term goals may be fulfilled within three years. Examples of short-term goals are home renovation, buying a two-wheeler and jewellery.
Medium-term goals are those that can be fulfilled within three to five years. Medium-term goals may be goals like going on an international vacation with family or buying a new car.
Long-term goals can be fulfilled beyond five years and more. They may be children’s higher education, retirement corpus, or buying a second home.
Once you have listed down your goals, ensure that you are calculating their real future value. Your goal’s real value is its future value after accounting for inflation which is the financial term for the regularly rising price of goods and services.
For example, suppose it costs around ₹6 lakhs for an international vacation with your family today, and you want to go three years from now. After three years, it can cost more on account of inflation.
Have you understood your risk appetite? Great! Do you have your short, medium, and long-term goals written down? Nice!
Now, you can match your investments to your goals keeping your risk profile and goals in mind.
Do you want to invest in mutual funds to reach your financial goals? Start your investment journey by choosing the right mutual fund for each goal with Fi Money.
Your long-term goal journey can have various short-term financial milestones. Reaching these goals can help us build confidence in achieving our long-term goals. Fixed deposits, recurring deposits, debt mutual funds and commodity mutual funds can be a few options for short-term investing.
You can invest in fixed, recurring, debt, and commodities mutual funds for a term of six months. To select from these options, you can analyse your risk profile and seek advice from a registered investment advisor.
The best investment for the short term can be the one that aligns with your risk profile and your goals. A few popular short-term investment options are fixed deposits, recurring deposits, debt mutual funds and commodities mutual funds.
Fixed deposits, recurring deposits and debt mutual funds are the three popular short-term investments.