When you are an adult, it is necessary to have a certain amount of money with you at all times. You never know what may happen. And the best way to deal with financial uncertainties is to keep spare cash at hand. However, beyond a certain limit, it is a good idea to park surplus cash in a proper investment avenue. Keeping extra money lying around will not earn you any additional interest.
In this article, let’s discuss some right investment avenues suitable for short-term investments.
Fixed deposits
Fixed deposits are a common short-term investment avenue for many people. They offer guaranteed returns (that are higher than regular saving bank accounts) to an investor. And they come with various tenures ranging from 7 days, 30 days and even 10 years. Investing in FD is a good idea if you have excess monies and are looking to increase your returns.
Pros
1) Provide guaranteed returns
2) Safe to invest
3) Higher yields than regular saving accounts
Cons
1) Inflation can impact your earnings
2) Cannot top up more money into the FD (you have to open a new account)
3) Penalty on pre-mature withdrawal: this could be a problem if you want to withdraw cash for emergencies
Stocks
Investing in stocks is among the best ways to maximise your wealth. Stocks can offer high returns to investors compared to most other investment avenues. And as an investor, you have the option to invest in stocks for the short-term too. This is known as short-term trading.
Pros
1) Potential to earn high returns in a short time
2) Low capital requirement
3) Freedom to withdraw money whenever you want
Cons
1) Likely to lose a large sum of money in a short time
2) High volatility in market in short-term
3) Time-consuming: you need to monitor the markets constantly
Liquid funds
Liquid mutual funds are debt funds that invest in fixed income securities. This includes government securities, commercial papers, certificate of deposits and treasury bills. These funds have short-term maturity periods of just 91 days. These funds are highly liquid and offer better returns than many money-market instruments.
Pros
1) No entry and exit load
2) Exit the scheme any time you like
3) Higher returns than bank saving account
Cons
1) Returns not guaranteed
2) Funds managed by professional fund managers, so you have no control over your investment
Conclusion
When you need to invest in the short term, you must choose an investment avenue wisely. You need to find out how to maximise your post-tax returns while ensuring capital preservation at the same time. Liquid funds meet all these criteria; making them an excellent choice for short-term investments. Spare cash might seem like loose change, but when you invest carefully and consistently, this amount can grow into a large corpus for you over time.
Banner Image Credit: Pixabay.com
