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Best Short Term Investment Options in India

Best Short Term Investment Options in India

Short term investments are highly liquid investment options and can be easily encashed without losing the investment value. There can be many reasons to invest in a short term investment option such as short term goals, utilisation of market opportunity or just easy liquidity in case of an emergency. Let us look at some of the best short term investments in India in detail.

Table of Contents

Features of Short-Term Investments

Before we discuss the best short term investments in India, first understand the basic features of short term investment plans.

  1. Short term investments are financial instruments with a tenure of less than 5 years.
  2. These instruments are suitable for earning quick returns and not for wealth accumulation.
  3. Short term investment plans offer high liquidity, better flexibility and low exposure to market risk.
  4. Such plans are ideal for meeting short term goals like buying a car, going on a holiday or down payment for a dream home.
  5. These plans can also be used for investing your emergency funds because the best short term investments can be easily converted to cash within a tenure of 3 months to 12 months.

6 Best Short Term Investment Plans in India

Here is a list of India’s best short term investment plans to help you choose the right option.

1. Fixed Deposit

Fixed deposits are the most preferred and safe investment option in India. It provides an easy way to invest your surplus money for a short duration directly through your bank account.

  • You can choose a tenure from 7 days, 14 days, 30 days, 45 days up to 10 years according to your requirements. After the completion of the tenure, you can reinvest the amount.
  • A fixed deposit can earn interest rates from 2% to 8% depending on its tenure. It provides guaranteed returns after maturity because it is not affected by market volatility.
  • FDs offer easy liquidity and allow you to withdraw money prematurely if required.
  • The interest earned on an FD is taxable according to your income slab and there is no tax rebate.

2. Recurring Deposits

These deposits allow you to deposit small amounts of money regularly instead of a lump sum amount. It is the best way to save small amounts of your income every month. The payments towards a recurring deposit can be made monthly, quarterly or 6 monthly.

  • A recurring deposit has a tenure ranging from 6 months to 10 years. It is mostly in the multiple of 3 months.
  • You can earn interest up to 7% depending on the tenure you choose.
  • A recurring deposit has an initial one month as a lock-in period. If money is withdrawn before the completion of the first month, the investor gets only the principal amount and no interest is earned.
  • The interest earned on an RD is taxable. A TDS of 10% is applicable if the interest earned in a financial year is more than ₹ 10,000.

3. Money Market Funds

Also known as liquid funds, these are some of the best short term mutual funds that invest in money market instruments including treasury bills, commercial paper, certificates of deposit, money market mutual funds etc. These are short term funds with high liquidity.

  • Money Market funds have a tenure of less than a year.
  • They offer an interest rate of 7%.
  • They are highly liquid and money can be withdrawn at any time without any restriction.
  • If you hold a liquid fund for less than 3 years, the profit earned is taxed at 15% under short term capital gain tax. If the fund is held for more than 3 years, a long-term capital gain tax of 20% is applicable.

4. Stocks and Derivatives

Stocks and derivatives are short term investments with no minimum holding period. You can buy and sell these at any time. However, these are high-risk investments and you should invest in stocks only after careful research. The returns also depend on the market conditions. So, if you have a high-risk appetite then only you should consider short term stocks as an investment option. Unless you have good market knowledge, it is best to consider more stable short term investment options.

5. Equity Mutual Funds

Equity mutual funds offer an easy way to invest in stock markets. They yield high returns but also have high risk. These funds are not as liquid as other short term investments because selling mutual fund units may take time. If you are looking for the top 10 stocks to buy for the short term but have limited or no market knowledge, the best way to invest is through equity mutual funds. You can choose any type of short term mutual fund according to the industry, sector or market capitalisation or select one with a diversified portfolio.

6. Gold and Silver

Gold and silver have always been the safest and most popular investment options. With ever-increasing prices, these investments give high returns and are good for both short term and long-term investments. These are risk-free investments you can consider for the short term.


Short term investments help you invest your surplus or emergency funds in a financial instrument which is liquid and can give returns in a short period. Understanding the features of short term investments can help you make an informed decision. Now that you are aware of the best short term investments available in the market, you can pick one that suits your requirements and achieve your short term financial goals.

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