Short-Term Investments Explained And How They Benefit MSMEs

Sometimes MSMEs face financial constraints when their working capital needs increase relative to the available capital. Capital constraints may affect MSMEs’ operations and investment decisions, which in the end, may impact profitability. However, if they consider short-term investment, they can be able to generate cash within a short time. A short-term investment is one that involves investing in securities with a short tenure. It is an attractive alternative investment option to grow money, and there are various advantages to enjoy by considering these high-return short-term investments. Various short-term investments are available in India, such as KredX’s invoice discounting.

Understanding Short-Term Investments for MSMEs

These investment options or marketable securities can be quickly converted into cash. Short Term Investments are those the investor can liquidate or sell within three months to one year. The objective of these investment options for MSMEs and individual investors is capital protection while at the same time generating a return. An investment is considered a short-term investment if it is liquid such as equities, and the company plans to sell it within a short period, like 12 months. 

Since the business will sell the purchased securities quickly, they get more returns from Short Term investments while at the same time minimising risk exposure because their maturity period is short. Alternative investments options in India, such as KredX’s invoice discounting, are increasingly becoming popular in India, which is helping businesses with immediate funds from investors and providing attractive returns in exchange for it.

Examples of Short-Term Investments

1. Invoice discounting 

Invoice discounting investment is one way an MSME can generate quick cash using its outstanding receivables as collateral to meet working capital requirements. This is a short-term option for raising capital that businesses can access from the KredX Invest App. With this investment alternative, a business will quickly use its outstanding invoices to get funds. 

2. Digital gold 

Another alternative investment with promising returns within a short period is digital gold. Digital gold is 99.9% pure, and investors don’t have to worry about authenticity and purity. Investing in this product allows you to diversify your portfolio against inflation and volatility, and you can receive cash within two days of selling your digital holdings. 

3. Liquid funds 

This type of mutual fund is invested in short-term government securities where the investor can liquidate their cash from the fund at any time. Liquid funds offer interest rates of around 7%. Additionally, the investment has enhanced security since your funds will be invested in money market alternatives.

How can Short-Term Investments benefit MSMEs

1. Portfolio Diversification 

Short Term investments can help investors in portfolio diversification. Since high-return short-term investments have a short maturity period, they aren’t susceptible to market fluctuations as investors can invest in a range of securities, including equities and real estate. Furthermore, smaller amounts of securities can be purchased to reduce risk exposure. Therefore, short-term investments allow an investor to diversify their portfolio without breaking the bank.

2. High liquidity 

Another benefit of short-term investments is liquidity, which means that one can buy and sell the instruments at any moment without concern about how they will affect one’s cash position. You can liquidate your investment at any time and invest in another instrument. This can work for you if the MSMEs need quick cash flow for their working capital, like buying raw materials and paying salaries. 

3. Flexibility 

Short-term investments offer flexibility, especially where investors want to park their cash for a short period without worrying about their money being tied up for decades. Since the maturity period is short, investors can invest their returns in other securities. As a result, investors can earn money on their trading decisions whenever markets are volatile as well as from steady movement in the opposite trend.  Most importantly, with short-term investments, you can put your money in a certificate of deposit or bank account and only take it out to invest somewhere when the opportunity arises.

4. High Returns 

The advantage of short-term investments is the promise of high returns. With the right investment, you are assured of high returns, and the returns can be invested in other alternative investments, such as invoice discounting investments. In addition, it is important to note that short-term investing offers tangible results within a short period. Therefore, Short Term Investments are an excellent alternative for those looking to make quick cash within a short period. 

5. Capability to withdraw money in the event of losses

Contrary to the misconception that one needs to purchase and hold if one invests in the equity market, it is not true. E.g, sometimes investors lose money when they buy stocks of firms whose shares have dropped and have to sell at a loss. With short-term investments, the investor can be kept out of such a situation since they will be more agile to avoid loss-making positions.

Bottom Line

Short-term investments are great investment options for those looking for stable and liquid alternatives to grow their money. There are many alternatives to consider, including invoice discounting offered by the KredX Invest App. These short-term investment options have many benefits, including high liquidity, more returns, flexibility, portfolio diversification and the ability to cut losses when markets fluctuate. If you are looking for short-term investments, consider KredX’s invoice discounting and alternative investments.