Everything about short-term investment plans is an expenditure. It is intangible and matures to cash within one year. If someone wants to invest in short-term bonds for instance stocks, the question is how to do short-term investment. An asset is liquid if we have an idea of short term investment that can get accessed by the owner. The benefits of short-term investments can quickly pass control, so buyers can’t impact the purchase price right away.

Examples of investments that we are most familiar with the short term are:

Benefits of Short Term Investment strategies:

  • Firstly, you can break open your piggy bank sooner than later. The tenure for which the investment is made is short, ensuring that your assets are accessed at low risk and quicker.
  • Secondly, there’s a low chance of losing your investment. In general, short-term investments are low-risk investments, provided the time span and stability. The idea behind these kinds of investments is to retain more than multiply your assets.

Pros and Cons of Short-term Investment

There are many success stories, but the truth of the matter is that people also lose money on intra-day trading. In the case of intraday trading, you will be doing a lot of transactions and thus will have to pay the brokers a good amount of the profit, if any.

Pros of Short Term Investment

  • The main advantage of short-term investment is its growth potential in a short period of time. You can make money faster as it allows you to actively participate in the market. It can give you more control over your money as you buy and then sell within a short time period. 
  • Short term investment has a compounding effect on overall profits i.e. you can reinvest your capital by making more trades. 
  • You can control your risk by closing your positions overnight so unexpected market changes will not affect your profits. 

Cons of Short Term Investment

  • A volatile stock market can make a dramatic change to your investments. However there are chances, you can lose a significant amount of money in a very short period. 
  • In other words, it is unpredictable to figure out where the stock is heading which can lead you to a stressful situation. 
  • It demands a lot of attention, you need to sit in front of your computer for several hours a day looking at your charts. However, technical charts are extremely complex and it requires a lot of hard work.

Top 6 Ideas for Short Term Investment options with their Pros and Cons

Recurring Deposits

Recurring Deposit (RD) is a popular investment option in India. It is among the low-risk investment tools with moderate and assured returns. For instance, it comes with a choice of consumer versatility in choosing investment numbers. The tenure followed by several additional benefits. If you want to make a monthly saving but with better interest rates, the recurring deposit is one of the ideal schemes available.

  • Tenure- one can open an RD account for tenure as less as 6 months and in multiples of 3 months up to 10 years.
  • Liquidity- Normally, a recurring deposit scheme comes with a minimum lock-in period of one month.
  • Returns- As one of the best short-term investment plans, the interest rate applicable on Recurring Deposit accounts are the same and Bank FDs. Similarly, for the tenure of 12 months and above, the interest rate applicable is 6.5% per annum.  However, the interest will be applicable as on the date of the first deposition.
  • Taxation- The interest earned on the invested amount is added to one’s income and is taxed as per one’s income slab rate.
The recurring deposit is one of the ideal schemes available.

Pros of Recurring Deposits

Investors considering short-term targets in a period of 1 to 3 years prefer to invest in Recurring Deposit regardless of this essence of RD.

Online Recurring Deposit Features

  • With nearly all the popular banks offering Recurring Deposit features online, investment has just become easier.
  • The consumer may deposit money, close the RD account, open another RD, update records, display purchases, deposit data, and do much more online. 

Recurring Deposit Interest Rates

  • Recurring interest rates for deposits depend upon the volume of term and loan.
  • Therefore, in certain situations, the interest rate on the Recurring Deposit is somewhat close to that on fixed deposits.

Cons of Recurring Deposits


When you deposit the money in an RD, you never have the privilege of withdrawing any portion of the money until the deposit term is over.

Rate of Interest 

The interest rate that you earn on recurring deposits is much lower than regular fixed deposit schemes since your deposits are being made in small installments and not as a whole chunk.

Stringent Monthly Installments

It’s not necessary to adjust your deposit number in the case of regular transactions, irrespective of the present financial condition.

Money Market Account

Popularly known as liquid funds, money market accounts are designed to give you the security of capital, as well as worthy returns and, are considered as a great short-term investment option. With a maturity time limit of 91 days, these do not possess any lock-in period and offer high liquidity and the least risk among mutual funds.

  • Tenure- one can open a money market account for a tenure of fewer than 13 months.
  • Liquidity- This short-term investment plan option provides high liquidity and can be redeemed in a quick time.
  • Returns- The returns on money market funds are not guaranteed or fixed. MMF is already promising an interest rate of 7 percent a year. For optimal payoff, the creditors will align their investment period with the maturities of these funds’ other investment assets, and then invest.
  • Taxation- In this short-term investment plan, the profit earned on the invested amount is added to the income of the individual and is taxed accordingly. However, following indexation, the income received from the expenditure made over 36 months is paid at 20 percent.
With a maturity time limit of 91 days, Money Market Account do not possess any lock-in period.

Pros of Money Market Account

Higher Interest Rates,  Higher Yields

  • Deposits on the money market appear to attract higher interest rates than most comparable deposits.
  • However, the amount they are paying is cumulative, implying the faster the balance rises, the more money the bank can give you.

Steady Returns

By producing capital returns they account for reduced interest income as bond prices fall.


You can easily withdraw money from cash machines or write checks and make transactions.

Cons of Money Market Account

Higher Minimum Balance Requirement

  • MMAs usually have higher minimum balance requirements. 
  • This is the minimum amount of money your bank wants you to have in the account. They usually range between $1000 and $2,500.

Limited Number Of Withdrawals

You may have to pay a charge if you surpass this amount.

Relatively Low-Interest Rate

Money market funds should monitor the fund’s period to enjoy the rewards of market interest rate shifts. Higher volatility implies the fund is vulnerable to elevated interest rate danger.

Debt Instrument

Debt instruments are just another genius investing strategy for the short term, particularly for risk-averse people. Securing capital and providing good results with no fear of market volatility, debt mutual funds are a good place to invest. Offering returns as big as 10.5 percent, this is a smart option for preserving limited tenure.

  • Tenure – The retention bond securities from the short-term investment split into three groups.
    • Low Term Investment- The capital is deposited in debt and money market instruments for a period of 6 months -12 months under this investment option.
    • Liquid fund- Through this fund choice, the investment is rendered through the money market and bond instruments for a duration period of up to 91 days in investment securities.
    • Ultra-short-duration investment- The capital is deposited in bonds and money market instruments for 3 months-6 months period in this investment option
  • Liquidity- liquid debt funds provide high liquidity in investment. The liquid debt fund has a fixed 91-day maturity. Compared with the investment plan it offers better returns.
  • Returns – The bond fund is regarded as one of the safest short-term investing options since it gives creditors reduced cost and daily returns. Currently, the debt fund offers an interest rate of 7-9% on investment.
  • Taxation- capital gain tax is charged on debt funds. The Short-term capital gain tax (STCG) applies to the capital gains earned on the fund which is held for the tenure of 3 years.
The liquid debt instrument fund has a fixed 91-day maturity.

Pros of Debt Instrument Investment

Maintain ownership 

  • You become obligated to make the agreed-upon payments on time
  • You maintain the freedom to manage your company but without any intervention you want.

Tax deductions

This is a major debt funding draw.

Lower interest rate

Analyze the Bank interest rate effect of tax deductions.

Cons of Debt Instrument Investment


  • Your sole obligation to the lender is to make your payments.
  • Above other bondholders, the shareholders will have a demand for compensation for instance pushing you into foreclosure.

High rates

Even after calculating the discounted interest rate from your tax deductions, you might still be faced with a high-interest rate.


  • By agreeing to give the lender collateral, you could potentially put some business assets at risk.
  • The more you borrow, the higher the risk becomes to the lender so you’ll pay a higher interest rate on each subsequent loan.

Bank Fixed Deposits

Fixed deposits are also known as short-term investment savings instruments in which the individual puts a lump-sum amount in the bank for a fixed time period. The fixed deposit scheme is known as one of the safest short-term investment options which offer a fixed interest rate on investment and provides guaranteed returns.

  • Tenure- The retention of a fixed deposit account extends from 7 days, 14 days, 30 days, 45 days, and up to 10 years as one of the best short-term savings options. One can renew and reinvest the deposits upon maturity.
  • Liquidity- The fixed deposit scheme not only offers high investment liquidity but also manages the risk of reinvestment.
  • Returns- A fixed deposit account offers a fixed interest rate on investment and the returns are guaranteed at the end of the fund tenure. The current interest rates offered by fixed deposits are 8%-9% for more than 1 year of investment. The interest rate on fixed deposit schemes does not change even in case of market volatility.
  • Taxation- Depending on the head of income the individual falls under, FD attracts a high-income tax rate up to 30%. Fixed deposits do not offer any tax deduction to the investors.
Bank Fixed Deposits offers a fixed interest rate on investment and provides guaranteed returns.

Pros of Bank Fixed Deposits

Safe investment option

  • The prime benefit of investing in a fixed deposit is that it is one of the safest investment options as the return on investment in the case of FDs is not based on the market fluctuations. 
  • By investing in an FD scheme, you can rest assured that your money is safe and secured.

Assured Returns on Investment

  • Unlike mutual funds, stocks and debt funds, fixed deposits promise assured returns on your investment. 
  • A fixed deposit scheme offered by banks and NBFCs is certainly an advantage for those who want assured returns on their investment. 
  • Also for the one who does not want to bear the loss of their money due to market fluctuations.

Flexible Interest Rate Payouts

  • Depending on your requirements, you can choose the time periods when you want your interest rate payouts. 
  • It can be on a monthly basis, annually or at maturity, whatever suits your convenience and the bank provides you.

Cons of Fixed Deposit

Lower returns on Investment

  • When compared to the size of return the mutual fund schemes and other investments in stocks and debt funds provide on investment, fixed deposit returns are a bit lower. 
  • But on the other hand, a fixed deposit comes with higher security of funds than mutual funds and the stock market as it is not based on any market fluctuations.


  • You can quickly liquidate bank-fixed deposits (FDs).
  • When it comes to closing the account before the maturity period, a savings account would be a better alternative.

Tax Returns

  • Any income earned on the fixed deposit will not be exempt from tax.
  • The interest earned from a fixed deposit is eligible for a 10% TDS deduction. 

Post-Office Time Deposits

Post-office time deposits are one of the cheapest and strongest short-term savings strategies giving the creditors guaranteed returns.

  • Tenure- one can open a post office time deposit scheme for a tenure of 1 year, 2 years, 3 years, or 5 years.
  • Liquidity- In the post office scheme, the interest applicable to the deposited amount is every year. The post office scheme will not require a premature withdrawal before the completion of 6 months.
  • Returns- The time deposit plan for the post office gives the following rate of return.
  • Taxation- The interest earned on the deposited amount is added to the income of the individual and is taxed according to the income tax slab rate the individual falls under.
Post Office Term Deposit scheme is offered by India post and is very popular in rural and remote areas of India.

Pros of Post-Office Time Deposit Investment

Returns guaranteed 

A fixed deposit scheme by the Post Office is safer and more secure than other financial institutions’ FD options because of government backing.

Considerable interest rate  

Investment in Post Office FD is more likely to produce better returns compared with other investment schemes.

No volatility 

  • Some of these programs are liable for the investment balance and tax rebates under Section 80C.
  • While the market experiences periodic ups and downs, neither affects the returns from POTD.

Cons of Post-Office Time Deposit Investment

Tenure of deposit

The term deposit given by the Post office is eligible for a duration of 1, 2, 3, and 5 years.

Rate of interest

Deposit rates for post offices vary from 8.2 percent to 8.5 percent p.a.

Open deposit account

Post office term deposit may either be accessed single or jointly by adult individuals. Others can not access the account with a deposit.

Large Cap Mutual Funds Investment

Large-cap mutual funds are short-term investment plans where the investment is made selectively in the stocks of large business organizations to achieve substantial growth in a shorter period of time. In 1 to 3 years of investment maturity, these outstanding limited investment strategies will produce fast and wise returns.

  • Tenure- one can invest in the large-cap mutual fund for the tenure of 3-5 years.
  • Liquidity- The large-cap mutual fund scheme offers high liquidity to the investors along with high returns on investment.
  • Returns- As a safe short-term investment option, the risk involved in large-cap mutual fund investments are low and offers a high return of 8%-13%
  • Taxation- capital gain tax is charged on debt funds. The Short-term capital gain tax (STCG) applies to the capital gains earned on the fund which is held for the tenure of 3 years.
Large Cap Mutual Funds Investment offers a high return of 8%-13%

Short Term Investment Table with their risk rating & tenure

Type of InvestmentRisk LevelTenure for Investment
Recurring DepositLow-Risk.Minimum: 6 Months.
Maximum: 10 Years.
Money Market AccountLow-Risk.Minimum: 1 Day.
Maximum: 90 Days+.
Debt InsuranceLow-Risk.Minimum: 1 Month.
Maximum: 6 Months+.
Bank Fixed DepositLow-Risk.Minimum: 7 Days.
Maximum: 10 Years.
Post Office Time DepositLow-Risk.Minimum: 1 Year.
Maximum: 5 Years.
Large Cap Mutual FundsHigher Risk.Minimum: 3 Year.
Maximum: 5 Years.
An overview table on short term investment strategies with risk level & tenure for your consideration.


Short term targets are designed to achieve certain events that may arise in the immediate future. For example, your kid is currently 16 and he/she will need cash for graduation after 2 years. Buying your kid a motorbike 3 years down the line when he graduates or a luxury car for your family, these are all short-term goals that require short-term investments. A few of them you can postpone and few of them you can’t. You must not take any risks and be specific about your decisions to achieve definite goals shortly.

These are all short-term goals that require short-term investments. A few of them you can postpone and few of them you can’t.

Frequently Asked Questions Regarding Everything about Short Term Investment Plans

How long is short term investment?

The tenure of a small investment plan can be 1 year or less.

Are Prepaid expenses a short term investment?

Yes, prepaid expenses are short term investment because the prepaid amount is used up or expires within 1 year of balance sheet date.

Which mutual fund is best for the short term?

Large-cap mutual funds are the best short term investment option which gives higher returns on investment.

What are cash and short term investments?

Short term investment and cash are the sums of two balance sheet line items. Both are considered a liquid asset.

Is a short term investment an asset?

Yes, short term investment is an asset.

Editor’s Note | Everything about Short Term Investment Plans

Indian economy is at the bottom but what is going in our favor is that the Indian economy is fiscally independent and healthy. Among the broader asset classes available, while bonds and gold have been outperforming since the crash, large-cap equities seem to be on the way back up. While short-term volatility is inevitable, it would be euphoric to recover from that natural disaster whenever it comes.


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