Almost everybody knows about fixed deposit schemes!
While its raging popularity roots from fixed returns and low exposure to risks, aggressive investors often do not consider adding FDs to their portfolio.
Moderate to low returns on deposited money is the primary reason why this short-term investment option fails to entice modern investors.
Most individuals now prefer investing in other short-term plans renowned for generating better returns than fixed deposit schemes.
Find out more below!
5 Short-Term Investment Options To Generate Better Returns Than FDs
These are a few options in India suitable for investors with a short investment horizon –
Fixed Maturity Plans (FMPs)
These close-ended debt funds allocate assets to corporate bonds, commercial papers, money market instruments, certificates of deposits, and government securities. Since it’s close-ended, one can only invest in FMPs during NFO via subscription requests.
Usually, fixed maturity plans come with a lock-in period ranging from a month to over a year. These maturity plans can either be dividend or growth fund options.
The government issues these bills, which come with a maturity period, not exceeding 1 year. These bills are generally issued at a discounted rate and redeemed at their face value – the difference is what you earn.
Suppose you buy ten bonds worth Rs. 1000 at Rs. 980/unit. Thus, on redemption, your earning is Rs. 20/bond, i.e., Rs. 200.
Since the government backs this short-term investment plan, they are counted among the safest investment options. Also, they have high liquidity in the market, which helps investors redeem them quickly.
Short-Term Debt Funds
These short-term investment plans come with a maturity period ranging from 1 year to 3 years. You can redeem these funds units before maturity without attracting any penalty, which is often impossible for FD holders.
Investors looking to park their money with a scheme for less than a year, say six months, often choose ultra-short-term debt funds over others.
Essentially, it is a debt MF that allocates assets to money market instruments and term deposits with a maturity period ranging from 3 months to 6 months. Their USP is that they can be readily redeemed and are also one of the top low-risk fund schemes.
Above all, they effectively generate higher returns than FD schemes of the same tenure, making them a more beneficial option for many.
Apart from mainstream choices, you can also invest in alternative short-term investment options like discounting company invoices. To that end, you will need to approach fintech companies like KredX and check out the company invoices uploaded on the bill discounting platform.
Company invoices are pre-verified by the discounting platform and come with credit ratings. Thus, it becomes simpler to choose them. Typically, invoices come with a maturity period of 30 days to 90 days and are ideal for the short-term. Historically, investing in invoices offers up to 12% to 20% returns, which is relatively high compared to FD schemes of the same tenure.
Besides, corporate bonds and government bonds are also lucrative investment options and yield higher returns than FD schemes.
Several short-term investment plans are effective in generating better returns than FDs. But as an investor, you must compare the available options before deciding. Also, note that short-term investments are rigged with market and liquidity risks. So, make sure to draw the necessary strategies to cushion your returns better.