There may be circumstances when investors must park their funds for a short period, say no longer than a year, and where the investment amount requires a mix of capital safety and liquidity.
You must take into account two crucial factors when looking for the best short-term investment plans. The risk to the invested funds needs to be reduced first. And second, you need to have easy access to your investments which is liquidity.
Here is a look at three safe investment options you can consider if you want to invest your money for less that one year.
Bank Fixed Deposits (FDs)
A secure option for investing for a year is a bank fixed deposit (FD). Each depositor in a bank is covered up to a maximum of Rs. 5 Lakh for both principal and interest amount under the provisions of the Deposit Insurance and Credit Guarantee Corporation (DICGC). The majority of banks enable online FD investments.
Although they are secure, your savings are very simple to liquidate. The majority of FDs, with the exception of tax-saving FDs, allow for early withdrawal with a small penalty. The procedure is also simple and quick. Using the bank’s net banking website, you can close your FD online.
Banks offer interest rates depending on the amount and tenure. SBI offers interest rate up to 5.25% for tenures below 1 year. HDFC Bank and ICICI Bank offers up to 6% for below 1 year tenure. While Yes Bank offers up to 6.35%. Small Finance Banks offer substantially higher interest rate on fixed deposits.Recurring deposit
Recurring deposit tenure starts from 6 months to 10 years. The majority of recurring deposit accounts require a set sum to be deposited on the same day each month. Quarterly or semi-annual payments are allowed under some plans. Recurring deposits enable investors to set aside a little portion of their income each month and place it in a product that may offer greater returns than a standard savings account.
RD gives customers the flexibility to choose the term that best suits their needs. SBI offers 5.25%, HDFC Bank offers up to 6.60% on tenures of 60 months. ICICI Bank offers 6.70% on tenure of 12 months. While PNB offers up to 6.70% on a one-year tenure RD.
According to the Kotak Mahindra bank website, “On premature withdrawal of RD. The interest will be paid at the rate prevailing on the date of Deposit for the tenure the Deposit remained with the bank or at the contracted rate, whichever is lower post deducting penal charge of 0.5% on premature withdrawal of Deposit.”
Post office time deposit
If looking for one year tenure, you can consider investing in POTD of 1 year.
A time deposit account can be cancelled prematurely by submitting the prescribed application form along with the pass book to the relevant Post Office.
Post office time deposit (POTD) offers an interest rate of 6.90% on one year tenure, for the July-September 2023 quarter.
Withdrawal can be made after six months from the date of deposit. If TD account closed after 6 month but before 1 year, PO Savings Account Interest rate will be applicable.
Prior to investing, you should be aware that the post-tax return will be lower as interest is added to your income and taxed in accordance with your income tax bracket. Choose safe investments with little chance of capital loss if your investment horizon is less than or equal to 12 months.