Where to park your money for short term
New Delhi : Short time investment is a financial plan, where you park your funds for a short period ranging from 1 to 3 years to attain your financial goals.
In short-term investment, one usually parks lower quantum of money, where the risk is low, and then the yield is constant or variable along with income tax rebates.
You may not get high returns as experienced with equity-based schemes, where the quantum of money invested is high, and investment is made for a long period. Short-term Investment gives you the flexibility to withdraw funds at shorter intervals and avoid long lock-in periods.
Short time investments are made keeping in mind short-term objectives, where you park your funds consistently monthly, quarterly or yearly for a period of fewer than three years to fulfill some need, which you are unable to meet due to non-availability of lump sum funds.
These short term Investment products may be classified into two major segments which are fixed income instruments and the other being linked to the financial markets.
A middle class or low-income group individual may have big dreams, which cannot materialize due to insufficient bulk funds at his or her disposal like the following cases:-
• Planning to buy gold or silver ornament for your spouse or any family member for their birthdays or marriage anniversaries within a year.
• Buying a car for your growing family within 2-3 years.
• Your house is in a dilapidated condition, and you want to renovate it within a year.
• Admitting your son or daughter for MBA, Engineering or Medical studies which requires a huge amount of money for every semester.
• Purchasing a two-wheeler for your son or daughter, who will join a college in the next two years.
• Planning a domestic or international vacation in the next three years for your whole family.
Where to park your money for short term
1.Savings Bank Account.
The safest option to park your money for short-term investment in India is the public sector or private sector banks, which offers the greatest safety and liquidity for your invested money.
Every person who is employed or runs a business or any person who has funds at his disposal needs to open a savings bank account compulsorily for all financial transaction.
In today’s context where the government is promoting cashless transactions, having a savings bank account is mandatory. There are a large number of public sector and private sector banks throughout the length and breadth of the country.
Public Sector bank branches are available in remote locations too. The services of the banks are availed by the poor, middle class and also the rich.
The common man in the city or the villages prefer public sector savings bank accounts to cater to their financial requirements, which have low minimum account balance facilities.
The private sector savings bank accounts, on the other hand, are patronized by the town or city-bred people, for their personalized services, the minimum balance to be maintained is around Rs 10,000, and non-maintenance of the minimum balance leads to stiff penalties being imposed.
The rate of interest hovers between 4% to 6%.for most of the public and private sector banks. Interest is credited in a savings bank monthly, quarterly or annually, as per the banks' norms.
The highest savings bank interest is given by the private sector banks, eg.DBS Bank, Kotak Mahindra Bank, and Yes Bank, though the minimum balance to be maintained in the account is quite high.
With the availability of online banking, ATM’s and call centers for the bank's customer service, transactions have become easier. You have to go to the bank once in a while for transacting.
The private banks have extended banking hours which are extremely popular with their clientele.
2. Fixed Deposits in Banks
A fixed deposit is a short time investment which has been very popular with the people for a long time. There are people especially the elderly who want a secure investment, which gives higher returns and easy liquidity.
The fixed deposits may vary from 7% per annum in a majority of the big banks while smaller banks may offer interest rates up to 9% per annum. Senior Citizens (above the age of 60 years), may additionally earn 0.25% to 0.75% higher interest rates than the regular depositors.
Regarding income certainty and safety of the principal amount, it is the most popular short-term investment. However, some banks do not allow premature withdrawal or impose stiff penalty rates.
Before investing in any Bank Fixed Deposit, one should survey the rates and conditions for investing in a fixed deposit. This can be done by internet survey or by visiting a few banks to choose the right Fixed Deposit.
Fixed deposit terms vary from bank to bank. Normally Fixed Deposits are available for seven days, 14days, 30 days,45 days, one year, three years and even up to ten years.
One should reinvest funds which attain maturity for a term which gives high returns. The Deposit Insurance and Credit Guarantee (DICG)corporation give you risk coverage for I Lakh rupees only if the bank fails due to any reason.
It will be advisable to invest for shorter terms in fixed deposits, to negate the possibility of a penalty for premature withdrawals, when you are desperate for money. The bank may deduct income tax as TDS as per the existing Income Tax rules.
3.Company Fixed Deposits
If you have a risk-taking appetite, you can park your funds in short-term deposits known as Company Fixed Deposits. The manufacturing companies offer Fixed Deposit rates which are at least higher by 1% to 2% as compared to other bank fixed deposits.
These deposits are unsecured which is a risk factor. In case the company fails to pay up the capital and interest component as promised, the investors have a right over the company’s assets.
This may be troublesome for investors who are not well acquainted with the funds' retrieval system .Premature withdrawal from Company Fixed deposits are at the company’s discretion and may invite stiff penalties.
Income tax is deducted as per the Income tax rules prevalent during that period. If the interest rate accumulates over Rs 5,000, TDS will be deducted at source.
4. Flexi or Sweep in Fixed Deposits
Having a large number of funds in your savings bank will not be a wise decision as the returns will be poor. A few banks are offering short time investment options as Flexi or Sweep in Fixed Deposits.
You may instruct the bank, that after a certain threshold amount in your savings bank account, any additional amount available will be automatically swept it into a fixed deposit.
You can earn a higher rate of interest at par with Fixed Deposits. If you present a cheque for withdrawal and sufficient balance is not available in the savings bank, the deficit amount will be swept in from the fixed deposit.
The money remaining in the fixed deposit will continue earning higher interest rates. Most of the banks operating this scheme have a fixed tenure of I year.
5. Recurring Deposit Scheme
The recurring deposit scheme is another short-term investment which is very popular with the middle class and low-income group customers.
You may not have a large fund at your disposal to invest in a big fund or have a plan to save money for your child’s education, daughter’s marriage, buying a two-wheeler for your wife or go for a family vacation.
You can open a recurring deposit account at any bank and invest a fixed amount at regular intervals and create a corpus of funds to realize your dreams.
You may invest in a recurring deposit from 6 months to 10 years. The interest rates are similar to the prevailing Fixed Deposit rates of interest.
The interest rates are calculated by the tenure of investment. This investment gives moderate returns. Income tax is levied as per the Income Tax department rules during that tenure.
6.Liquid Mutual Funds
Liquid mutual funds are short-term investments which offer low-risk returns in short to medium term. It is a debt oriented scheme offering an easy entry and exit route.
You may be able to earn 6% to 7.5% interest per annum, but returns are not guaranteed. Liquid Mutual Funds are subject to capital gains taxes.
If you withdraw your accumulated money before three years, Short-term Capital Gains taxes are levied and if you withdraw the accumulated money after three years, along Term Capital Gains tax will be applied on the deposit.
7.Fixed Maturity Plans
Fixed Maturity Plan is another short-term investment plan, which is a debt fund. The money is parked in debt securities like treasury bills, certificate of deposits and government bonds.
These are debt instruments, which are close-ended and the corresponding risk factor is low. The returns from this short-term investment fund are reasonably good with lower income tax liabilities.
