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Investment Plans 336 views July 5, 2021
Investment horizon has a bearing on the returns you earn on your invested capital. While aggressive investors stay invested in stocks for a long time, conservative investors put their money predominantly in low-risk instruments. The irony is that these instruments are the best bet for the short term only. So, if you have an investment horizon of 3-5 years and have a low-risk appetite, these instruments are for you! Read this article where the best investment plans for the short term are explained. This will help you pick the right investment option for yourself.
Table of Contents
People with a short-term investment horizon aim mostly for the safety of the invested capital. So, we have prepared the list of best investment plans for the short term accordingly. Take a look!
If you are looking for investment returns along with a life cover, investing in debt-oriented Unit-linked Insurance Plans (ULIPs) won’t be a bad idea! The premium payable for such plans would go towards securing the future of your dependents in case of your unfortunate death during the policy term and ensuring returns for you by getting invested in debt instruments. ULIPs, however, invest in stocks too if they are equity-oriented. That’s why it is advised to invest in debt-oriented ULIPs assuming you are a conservative investor.
If you want guaranteed income along with the security cover for your family after your death, maybe you should start investing in the best endowment plan. The money invested in this investment plan goes into financial instruments offering guaranteed returns while also securing your family in case of your death. That said, you can also surrender the endowment plan after it attains a surrender value. Normally, a spotless premium payment track for 2-3 years can help ensure the same. So, in case you find it hard to pay the premium later, you can surrender the plan and take away the value it might attain by that time.
Fixed deposits, as the name suggests, allow you to invest a fixed amount for the time you wish to. The significant thing is that you get fixed returns, pleasing the conservative investor sitting in you. It earns you interest at around 5-7% per annum. If you are a senior citizen, you can earn an additional interest rate of 0.25-0.50% putting your money in this best investment plan. Returns are compounded too on a monthly, quarterly, half-yearly or annual basis, depending on the compounding frequency the bank chooses. Generally, the returns are greater when booking this investment plan for the short term.
Not only banks offer fixed deposits, but even non-banking finance companies (NBFCs) do the same. What’s interesting is that these companies can offer greater returns on fixed deposits. This might prompt you to think it’s better to book an FD here than at a bank. Don’t carry such an impression as you might lose flexibility under the weight of greater returns shown by these companies. Companies with poor ratings can default on principal and interest payments at maturity. The poor liquidity and weak financial infrastructure of these companies could bring such an undesired outcome for you to deal with.
So, check the rating of the company before booking a corporate fixed deposit. Look to book an FD with a company having A-rated instruments. Such ratings mean the company has the liquidity to give you back the invested capital along with accrued returns at maturity. Companies rated below can be ignored while booking fixed deposits. The reasons for the same have already been explained.
Besides fixed deposits, you can also book a recurring deposit mainly available at banks and post offices. As the name suggests, you can book an RD by investing a fixed amount every month for the time you wish to. Usually, both RD and FD have the same maximum deposit tenure of 10 years. What’s more, the interest rate also remains the same for the two at a particular bank. So, if a bank offers 6% on booking an FD for 5 years, the same rate will apply to RD for the said period. The rates can vary across banks, so go online, compare and choose the RD offering you the maximum interest on your invested capital.
You can book a time deposit account at any of the post office branches in India by putting a minimum of INR 1,000 in the same. However, there’s no maximum deposit limit, raising the scope for greater returns on this short-term investment plan. Deposit tenures can range from 1-5 years, with different interest rates based on the period you choose to keep the money for. Check the table below to know the period-based interest rates of the post office time deposit account.
|Deposit Tenure||Interest Rate (In Per Annum)|
Note – The government can change the rate of interest from time to time. Plus, the interest is calculated every quarter and is paid annually.
Debt mutual funds can also offer good returns in the short term. These funds invest in a myriad of debt instruments from government securities to money market instruments. Debt funds can be of many types – short-term fund, ultra short-term fund, liquid fund, and much more. Here also, if you choose a fund after checking the asset allocation and the rating of the instruments where the money will go, you can get better returns.
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