As per the Internal Revenue Services (IRS), short-term investment consists of current accounts of a company or a person, which mature, expire, liquidate or reach an end at the lapse of a time period, not more than 12 months. Now this may be the official definition, but for us, it simply means, an investment vehicle that has a shorter time period of maturity and liquidity, anywhere between 1 to 5 years.
Since we have cut down the time period of the investment to a short-term, the number of investment channels has considerably dropped down. However, the ones that are short-term in nature are diverse enough.
- Such investments, on an average, have a time period that spans from 1 to 5 years and in some cases, even 7 years.
- Such investments have an average rate of return of about, 5% to 9%, with most investment channels providing about 6%. Other than that, the return on investment for shares, options, commodities and bullion is unpredictable; it can be more than 100% or it may even be negative at times.
- These investment options usually have a one-time payment or for a few of them, this would be your initially invested principle.
- Investments can be segregated into high-risk investments and medium-risk investments. There are a very few selected ones, that offer a zero risk of return.
- Last, but not the least, rule of thumb is that, the more you invest, the better would be your return on investment and the net asset value. You have to invest smartly of course.
- It must be noted that really short investment funds do not offer a guaranteed minimum return clause, and instead the returns depend completely upon the portfolio, market and economic performance. An example is mutual funds.
- In case of investments for a period of 5 to 7 years, a guaranteed minimum return clause is added, meaning that you will get back all your principle invested amount, plus a return on investment of about 5-7% and, in addition to that a bonus, which depends upon the portfolio, market and economy performance.
- The loading charges and commission charged on these investments is usually very low, 1 to 2%, though in some cases, it might go up by about a couple of numbers, but on the whole, it would remain low.
The following are some of the most important and best avenues where you can 'park' your investments for a short time period. Take a look.
A stock market is a great place to make a very risky, but calculated profit. Enter at your own risk, as the probability of losing money is high. Hence the daily research and update on the stocks in which you invest in is necessary. We would also recommend you that ignore the 'more the better' rule in this one. In the volatile market scenario of 2018, only invest in solid stocks, which have a sound financial basis.
There are some investments in the form of funds and schemes where all you have to do is put in your investment, sit back and enjoy. What makes these investments great is the fact that they are managed by leading fund managers and the returns are fixed and assured until a certain extent. Apart from that, there is profit sharing and bonus benefits which depend upon the performance of the portfolio, markets, and the general economy. The better the performance of the economy, the better are the returns.
Apart from share and common stock, companies and corporations also use some instruments and securities such as bonds and debentures. Both these bonds and debentures are 'I-owe-you' instruments wherein, you would have to deposit certain amounts with the company and let the interest accumulate on it. The entire sum is then returned upon maturity. Note that some of these securities are publicly traded through stock exchanges.
Bank provided investments include some Certificates of Deposits, I-Owe-You instruments such as bonds, fixed deposits, recurring accounts and prolonged cash back plans. Such investment options provide an assured return and it is a great way to utilize the cash that is lying around.
We would recommend you to first choose the ones with the least risk involved, followed by the ones which have a medium risk. If you do not have experience, confidence and knowledge of the stock or bullion market,it is recommended that you learn first, as these markets are very fast and highly dynamic which increases your risk of losing money.
Disclaimer: These are rough guidelines to provide you a basic understanding of short-term investments. Please consult a financial expert before investing.