Short-term Investment Plans: Overview
Short-term investment plans are financial instruments that help you invest your money for a short period, typically 1 month to 8 years. Various investment instruments are available in the market to help you generate returns for a brief tenure. There are several benefits of investing in a short-term investment plan, including:
- Lower risk due to short policy tenure
- Ease of management
- Tax benefits
- Alignment with your short-term goals
- Helps in the diversification of funds
- Liquidity, as funds are easy to access
This article provides complete information about various short-term instruments, their benefits, and factors to consider when investing in short-term options.
Best Short-term Investment Options
There are various instruments in which you can invest your money for a short period. Here are some popular short-term assets:
Short-term Investment Plans
Short-term investment plans are financial instruments that offer dual benefits: life coverage and maturity benefits. The premiums you pay are invested in a life cover and market-linked funds that generate returns. You can use these returns to accomplish your financial goals.
| Name of the Plan | Entry Age | Maximum Maturity Age | Policy Term | Maturity Amount |
|---|---|---|---|---|
| Max Life Smart Wealth Plan | Min- 91 days Max- 65 years | 85 years | 6 to 20 years | Rs 25,25,720 |
| ICICI Prudential Gift-Lump Sum | Min- 18 years Max- 60 years | 80 years | 5 to 20 years | Rs 23,40,571 |
| ICICI Prudential Gift-Long term | Min- 0 years Max- 60 years | 101 years | 8 to 14 years | Rs 22,90,921 |
| ICICI Pru Guaranteed Income For Tomorrow | Min- 0 years Max- 60 years | 101 years | 8 to 14 years | Rs 27,40,344 |
| IndiaFirst Life Money Balance Plan | Min- 5 years Max- 18 years | 75 years | 5 to 70 years | Rs 14,23,175 |
* The above premiums are for a 30-year-old male for a monthly premium of Rs 1 lakh and a premium payment term of 10 years, with total premiums of Rs 10 lakhs.
Short-term Investment Plans for 3 Months
You can invest your money in the following instruments for a 3-month timeframe:
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Short-term fixed deposits
You can invest your money in short-term fixed deposits for a period starting from 7 days. These FDs offer an interest rate of 5-7% annually.
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Treasury securities
These are treasury bills issued at par but sold at premium prices that help you earn interest. They carry a policy tenure of 91 days to 365 days, with an interest rate of 5-8% annually.
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Savings accounts
You can invest your money in savings accounts. These are safe deposits with lower interest rates ranging from 1 to 3% annually.
Short-term Investment Plans for 6 Months
You can invest your money in the following instruments for a 6-month timeframe:
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Stock market
You can invest your money in equities in the stock market for 6 months. The rate of interest depends on market conditions and volatility.
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Gold/silver instruments
You can invest your funds in gold/silver instruments. The average returns on gold/silver instruments range from 5 to 8% annually.
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Debt instruments
Debt instruments invest your money in debt funds for 6 months or to your choice. The interest rate is not fixed and may vary.
Short-term Investment Plans for 1 Year
You can invest your money in the following instruments for a 1-year timeframe:
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Post-office deposits
You can invest your money in post-office deposits. It is a safe instrument that provides an annual interest rate of 6 to 8%.
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Mutual funds
Mutual funds help you grow your funds over time. The returns offered are subject to market risk. On average, they offer a return rate of 10 to 12%.
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Recurring deposits
A recurring deposit allows you to save money by making regular deposits over a period.
How Does a Short-Term Investment Plan Work?
Let’s understand how a short-term investment plan works with a simple premium illustration.
Problem: Mr. Sharma was looking for a short-term investment plan (for 5 years) that offers him life coverage and market-linked returns on his money to accomplish his short-term goals.
Solution: Mr. Sharma consulted his financial advisor who advised him to invest in a short-term investment plan. He bought ICICI Prudential Gift-Lump Sum, which offers him life coverage along with market-linked returns.
Let’s understand how the ICICI Prudential Gift-Lump Sum works for him.
| Age of policyholder | Annual premiums | Policy tenure | Premium payment term | Total premiums paid | Maturity benefits | Death benefits |
|---|---|---|---|---|---|---|
| 30 years | Rs 1 lakh | 5 years | 5 years | Rs 5 lakhs | Rs. 7, 23,000 | Rs 10 lakhs |
Takeaways: Once the policy matures, Mr. Sharma would receive a maturity amount of Rs 7,23,000 that he can use to fulfill his future financial goals. In case of Mr. Sharma’s demise during the policy tenure, his child would get death benefits of Rs 10 lakhs.
Benefits of Short-term Investment Plans
There are numerous benefits of investing your money in short-term plans. Let’s understand these benefits in more detail:
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Low risk associated
The risk associated with short-term investment plans is comparatively low due to their short policy tenure.
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Ease of management
You can easily manage your short-term investments as they are for a short duration. These investments do not require continuous checks.
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Helps to accomplish short-term financial objectives
Short-term investment options help you accomplish your near-term financial goals and objectives. The goals of every individual vary.
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Diversification of your money
Short-term investments help you diversify your money. It’s necessary to diversify your money to minimize risks and maximize your returns.
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Liquidity
Investing in short-term investments offers you liquidity as you have easy access to your funds without any hassles.