Savings play the crucial role in building your financial security and guaranteeing you freedom.
In the aspect of financial plan, people usually think about retirement, education fund, or even buying a house for living but one should also think about immediate short term objectives in spending such as purchasing a car, paying of bills, or even going for a vacation.
Short-term investments also assist in attaining such goals without necessarily tying down the funds for several years. To help accomplish short-term visions and missions, here is how choose best investment or short-term goals.
What are Short-Term Investments ?
‘short-term investments’, as the names suggest, refer to an investment that you make for a few days, weeks, a month or a few months. The specific long-term goals of short-term investing include earning income within a short period and the security of the invested capital.
For instance, you may prefer to spend money on purchasing the latest model of a phone or advance payment for a holiday in several upcoming months.
Important characteristics of short-term investment Options
Liquidity:
They are usually short-term, highly-liquid, assets that can be easily and quickly converted back into cash. However, this feature is very important since it will enable you to have an access to the cash at any given time.
Tenure:
These are investments for short-term goals and are typically for a period of a week, a month, or a few months. They are used to meet the basic, current, financial needs of an individual.
Risk:
In general, short term investments are often less risky than long-term investments at the period of its investments. This makes them suitable for conservative investment as the principal invested is locked in for a long term.
Returns:
However, the returns from short-term investment options is relatively slightly lower compared to those of long term investments, although they are attractive.
Benefits of Short-Term Investments
- Flexibility: It enables you to invest for short and get back within the period of your choice owing to the short time horizons it offers.
- Accessibility: There are various short term investment products on the market and you can get an opportunity to select the one that will help you achieve your target.
- Security: These investments occasionally yield good results with low chances of loss, thus suitable for the low-risk individual investors.
Common Investments for Short-Term Goals
1. Savings Accounts and Money Market Accounts
What They Are: A savings account or money market accounts are convenient and relatively riskless ways to store your money. They provide interest over its term, although the interest rates are normally not as high as those of most investments.
Benefits: The capital is secure at all times, and it is not difficult to get the deposited money back.
2. Recurring and Fixed Deposits
What They Are: Fixed Deposits (FDs) involve depositing a certain amount of money for a certain period in return for an agreed interest rate while Recurring Deposits (RDs) involve depositing a fixed amount of money at specified intervals, again at an agreed interest rate.
Benefits: Both have a fixed rate of interest and help the lender to earn a regular income. While the savings in an FD are more suited for a one-time invest, the savings in an RD are more suited for regular investments.
3. Debt Funds
What They Are: Debt funds involve buying of debt securities such as government securities, corporate securities of debentures and treasury bills. It returns are slightly higher than that of saving accounts, though comes with moderate risk.
Benefits: They are very much flexible; you can purchase the security, or sell it, at any time of your choice. For instance, the Kotak Savings Fund, an ultra-short-term debt fund has been giving returns of around 7%-8% each year.
4. Equity Funds
What They Are: These mutual funds buy stocks of various companies and industries. Short term equity funds are designed as specialized funds that try to earn high returns from stock market fluctuations.
Benefits: The former gives you better yields, but their delivery is risky because of market fluctuations. If you have a higher risk tolerance level these can be managed and they are a good option.
Factors to Consider When Choosing Short-Term Investment Options
Investment Objectives:
As a consumer, it is essential to have your financial objectives laid down very sharply. Are you saving to cater for certain need or you are merely investing to get more money as your initial capital.
Risk Tolerance:
This tells you how much of a position you will take depending on your tolerance to risk. In case you want to minimize the level of risks, there are only Fixed Deposits and savings accounts available to you.
Return on Investment:
So, although short-term investment options pay a lower rate of interest as compared to long-term ones you can anyway select the plans that will enable you create a decent corpus.
Liquidity Needs:
Make sure that with the money that you are investing the liquidity requirements are going to be met. If you might likely require the money before the term period is over, opt for the most easily convertible option.
Market Conditions:
It is essential to follow and track the current market conditions. Hence for instance, during low-interest structures, debt funds may perhaps give better returns than Fixed Deposits.
Conclusion
When planning and managing your investments, it is usually advisable to consider such considerations; Investment options for short term goals are suitable for anyone who wants to get quick, safe and easy returns on investment.
For a small trader or investor, identifying these investment options for short term goals and thinking carefully about the amount of money or capital required, potential losses and profit potential can help them select the most suitable small investment plan.
Do not forget that it is essential to remain aware of current market conditions and make the proper decisions that would support one’s financial strategy.
Happy investing!
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How to Choose the Best Investments for Short-Term Goals