What is short-term investment?
Short-term investments are assets that can be liquidated or sold within a short period of time, typically 1-3 years.
Many short-term investments are sold or converted to cash after just three to twelve months.
Short-term investments can also refer specifically to financial assets – of a similar nature but with some additional requirements – owned by a company.Recorded in a separate account and included in the working capital section of the company’s balance sheet, short-term investments in this context are investments made by a company that are to be cash in one year.
Unlike long-term investments, which are designed to be bought and held for a period of at least one year, short-term investments are bought with the knowledge that they will be sold quickly.
Long-term investors are generally willing to accept greater levels of volatility or risk, in the belief that these “hits” will eventually even out over a long period of time, provided, of course, the investment continues to grow positively.
When you should and shouldn’t Look for Short-Term Investing
When you make a short-term investment, it’s often because you need to have the money by a point in time. For example, if you have invested Rs10 lakh and are also planning to buy a new house next year and you also need cash for your down payment then making a cash investment in shares High Volatility is not always the quality strategy. The more risky a financing is, the greater its volatility or price fluctuations.So if your time horizon is incredibly short, you will be forced to sell your securities at a huge loss. With an extended time horizon, buyers have more time to recoup potential losses and are therefore theoretically more tolerant of higher risks. For example, if that Rs10 lakh is for a lakeside holiday home that you want to buy in 10 years, you could invest the money in riskier stocks. Why? Because there may be more time to recoup losses and a lot less chance of being forced out of placement too soon.
Where can you invest for short term:
- Savings account: Everyone’s choice for a safe short term investment option. It provides liquidation and is accessible anytime. But only provides a 4% interest rate so it sure can’t be your only investment vehicle.
- P2p lending: Excess cash can be put into play via one of these lending platforms that match borrowers to lenders. Some platforms provide all time access to their investors to cash in on their investment whereas some have a minimum lock-in period of 1 year. Lendenclub can be your 1st choice for you to start with p2p lending.
- Equity: There are several risks that are involved with investments which is why the stock market has a 50:50 success rate. It is for this reason that short-term equity investments are considered as risky, whereas long-term investments are considered much more profitable and consistent in terms of returns.
- Recurring deposits: This is a type of secured investment and is suitable to those who don’t want to invest in a lump sum and rather invest on a monthly basis. You can use Postal RD or Bank RD, generally banks offer RD for a tenure of 6 months to a most of 10 years. The interest on RD is taxable.
- NSC: One can also invest in 5 years Postal NSC. Under section 80C of Income Tax Act You can claim tax deduction, the interest will be taxable.
- Fixed maturity plans: is a fixed tenure mutual fund scheme that invests its corpus in debt instruments maturing in line with the tenure of the scheme. The tenure of an FMP can vary between a few months to a few years.
Short-term investments can be great investments for individual investors and corporations who are looking for both liquid options but at majority of time short term investments aren’t a way to grow their wealth. The options are plenty: from CDs to bonds and high-yield savings accounts, it’s only up to each investor to do their homework.
Nowadays, there are many investment options available in India. Unlike a few years ago, when FDs and equities were the popular choices among people, various new-age investment options like P2P lending have emerged. The best part about these investments is that they have the ability to balance the risk and returns, which most investors find hard to achieve.
On top of that, online marketplaces like LenDenClub further simplify the process for investors. Let us see how –
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