There are many circumstances in life when you might require money for a very short-term period. Even if you have the choice, you might not want to borrow a loan because it charges interest. At the same time, you have to attend to your immediate needs. If you plan your investment beforehand for short term, medium term and long-term needs, it will be easier to attend to your short-term monetary needs.
Short-Term Investment Options
Although there is no clear demarcation about short-term, mid-term or long-term, anything less than a year can be considered short term. Any emergency need is also short-term need. Some of the options to address such need are Fixed Deposit, Loan from Provident Fund, Mutual Fund, etc.
If your short-term need is pre-planned, you can select appropriate maturity period of the Fixed Deposit in advance. In fact, you can cultivate the habit of opening new Fixed deposit at a regular interval, say at every three or six months with 2-3 years of the maturity period. In this way, you can create a series of Fixed Deposit, maturing at regular intervals. This arrangement enables you to avail short-term funds every time while getting the highest FD interest rate as per the maturity period.
In case an emergency need strikes, Fixed Deposit can be your shield. You can take a quick loan against your FD, or you can prematurely withdraw the FD. While a loan charges interest, the FD amount you withdraw will come without extra charges. You can use online FD calculator to decide precisely.
Bajaj Finance offers multiple options within fixed deposit with higher interest rate and different maturity period.
You can park your money into short-term or liquid debt mutual fund. In the short run, it will give you reasonable returns at about 6% per annum. However, you should understand that compared to FDs, there is a higher risk in the investment of Mutual Funds as the returns are subject to market risk. You have to be prepared for a loss if the stock market encounters an adversity. You can invest in a mutual fund if going long term is not an issue for you.
Time Deposits by Post Office
Many investors find it comfortable to invest in time deposit provided by the Post Office because it comes with a sovereign guarantee. It comes with a range of tenure from one to five years. Up to six months, the deposit cannot be withdrawn. After six months, you are allowed to withdraw prematurely with a small penalty. Despite being the most secure form of investment, complexity of paperwork at the post office makes it difficult for many investors who do not have enough time to complete all the formalities.
The recurring deposit is the most suitable for planned short-term goals and regular monthly income. For example, if you have a marriage function in your home after two years, you can consider opening a recurring deposit by saving INR 10,000 out of your salary. You will have a sizable corpus to support your marriage function at that time. To know the exact maturity value of your investment, you can use the FD calculator available online.
Auto FD in Savings Account
Many people do not find it convenient to open short-term fixed deposit because of formalities and time involved. Hence, they end up parking their money in Savings Account. Savings Account offers a meagre 3.5% returns, which is not enough to beat inflation. Many banks provide Auto FD facility in the savings account. In this facility, when your bank balance goes above a certain amount gets converted into Fixed Deposit.
In case of higher withdrawal, Auto FD is liquidated automatically. In this case, interest earned depends on the period for which money has remained in the FD account. The returns might not be as not as good as regular FD, but it is better than keeping your money dormant in your Savings Account.