The Ultimate Guide to Short-Term Investment Plans for 3 Months

Why Invest Money into Short Term Investment Plans?

You may wonder whether investing for such a short duration is even worth it. You can be assured that it is indeed worthwhile! This is what you should consider when making your investment decisions.

1. Attractive Returns

   Your money would not grow unless you invest it in avenues that offer returns. Even when you have a 3-month investment horizon, investing your money into liquid avenues can help you earn returns and grow your savings.

2. Resisting the Urge to Indulge

   When you have additional money simply lying around in your day-to-day expense account, there is a high tendency to indulge in impulsive purchases. When you invest this surplus in secure investments in India, you safeguard your funds from unnecessary spending.

3. Balancing Your Emergency Reserve

   An emergency fund requires accessibility, but it also requires growth. A 3-month investment plan keeps your emergency savings accessible and can even generate returns.

Best 3 Month Investments in India for Fast Results

With only 90 days to invest, it's crucial to avoid taking risks. You need security. These are the best investment plans in India for this period.

1. Fixed Deposits in Banks (FDs)

   FDs are the oldest, safest, and easiest form of saving. Most Indian banks, post offices and Non-Banking Financial Companies (NBFCs) allow you to open short-term fixed deposits starting from 7 days onward.

   For a 3-month investment period, that is, for around 90 to 91 days, depending on the bank, you can earn anywhere between 4.5% and 6.5% as annual interest.

   • Pros: Returns are 100% guaranteed. Once you have opened your FD, your returns are predetermined and assured.
   • Cons: If you terminate the FD even before the 3-month time limit, a small fee (1%) is deducted from the applicable interest rate.

2. Liquid Mutual Funds

   If you want to earn market-linked returns even in the short-term tenure, you can consider investing in liquid mutual funds. Liquid mutual funds are a type of debt mutual fund that invests in short-term instruments such as treasury bills, commercial paper, and certificates of deposit.

   The returns are stable and the risks are low since liquid mutual funds are debt funds. Here are their pros and cons

   • The Pro: Their biggest advantage is their liquidity. Most liquid mutual funds process redemption within one working day (T+1), while some AMCs offer instant redemption only up to specified limits. Some liquid funds may apply a graded exit load for withdrawals within the first 7 days, after which no exit load is usually applicable.
   • The Con: The returns are market-linked and may fluctuate slightly based on interest rate movements. Furthermore, under the latest tax regime, any capital gain will fall under your income tax slabs.

3. Savings Account with Sweep-in Facility

   The "Sweep-in" facility combines the best of both worlds: higher interest rates of fixed deposits with the flexibility of a regular savings account.

   In this, you set a cap on your savings account balance (like ₹50,000). The moment this cap is exceeded, the extra amount is automatically deposited in an FD and earns a better interest rate. In case you require more money than ₹50,000, this extra amount automatically sweeps back into your savings account from the FD without attracting any penalties.

   • The Pro: You can enjoy the liquidity that savings accounts offer, while your surplus funds can earn attractive FD interest rates. Plus, the interest income is guaranteed.
   • The Con: The interest income is taxable and might not keep up with inflation.

4. 91-Day Treasury Bills (T-Bills)

   The Reserve Bank of India (RBI) sells treasury bills, which are, in essence, short-term lending instruments where you lend money to the government. You can buy the 91-Day T-Bills through the RBI Retail Direct platform or via banks and brokers.

   • The Advantage: No default risk. They represent the safest investment in India.
   • The Disadvantage: Slightly more complicated than depositing your savings in a fixed deposit account via the banking app, but the yields are roughly equal to those of the best bank FDs.

Comparison of Investment Options for Fast Yields

To better understand these investment options, compare their relative merits in tabular form.

Choosing the Best Plan for You

How does one choose the best 3-month plan? This is straightforward. There are basically two steps that you can take to help you choose.

1. Determine Whether Your Money Has Any Liquidity Needs

   First, ask yourself whether you want to use this money within 3 months. If you have an affirmative answer, it would be wise not to go for a traditional fixed deposit. Go for a sweep-in savings account or liquid mutual funds, as you can withdraw your money within 24 hours.

2. Evaluate the Taxation Laws

   Taxation is a huge deterrent to quick profits. Tax is applicable on the returns generated from any of the aforementioned saving options. If your tax bracket is 30%, your post-tax profits will be less. Always include these factors when estimating actual profits.

Conclusion

Short-term investment plans can be a practical way to make better use of surplus funds while maintaining liquidity and relatively low risk. Options such as fixed deposits, liquid mutual funds, sweep-in accounts, and Treasury Bills offer different benefits based on your financial objectives and access requirements. Before investing, it is important to evaluate factors such as returns, taxation, liquidity, and risk tolerance. Choosing the right short-term investment option can help your money grow steadily over a 3-month period, rather than remaining idle.