Before getting acquainted with the investment options, let's understand what are short-term investments and what are the advantages.

What is a short-term investment?

If the investment is less than 3-5 years, it is considered short-term. Investments below this level are more risky.

What are the advantages of short-term investing?

The purpose of short-term investment is to protect the principal and earn returns similar to normal bank FD rates. Never choose options that highlight attractive returns. Such risky investments may also increase the chances of risking your principal.

Short-term investment options in India 2025

Short-term investment bank fixed deposits or RDs: Bank fixed deposits (FDs) and recurring deposits (RDs) are simple in nature and easy to understand. You can use FDs and RDs whenever you need money. If you want to invest a large amount of money, then instead of putting everything in one bank, you can find a better investment if you deposit it in two or three banks. Sweep-in FDs are also worth considering if they are offered by your bank. If you are looking for a completely safe option, consider post office term deposits. However, avoid company FDs, NBFC FDs or Small Finance Bank FDs. These options may seem more attractive than regular FDs, but they are more risky.

Overnight Funds - These are the safest debt mutual fund products. If a week's deposit is required, one can use the overnight funds. For more research, you can choose any mutual fund company's overnight fund.

Liquid Funds Liquid funds are more suitable if the need for funds arises within a few months of investing. If you have a clear timeline for when you will need the money, traditional bank fixed deposits (FDs) are appropriate. If you are uncertain about the timing of your financial needs in the short term, you can either use overnight funds or liquid funds. If you have a sweep-in bank FD, it is better to prefer this option over the above categories of debt funds.

Arbitrage Funds - You can use arbitrage funds if your holding period is more than one year. During market volatility or when there are no arbitrage opportunities available in the market, arbitrage funds may generate negative returns for a few months. So, use them with caution, it is advisable to use them for an investment period of more than 1 year or more.

Ultra Short Term Debt Funds - The duration of the portfolio of this scheme is 3 to 6 months. Compared to other categories of debt funds, it is safe in terms of volatility, but a bit riskier than overnight funds and liquid funds. However, in ultra-short term debt funds, if the fund manager invests in lower rated bonds, you may face an additional risk of default or downgrade. This requires more research than any other option.

Money Market Funds - This is an open-ended debt fund where the fund manager is mandated to invest in money market instruments with a tenure of up to 1 year. Money market instruments include certificates of deposit, commercial papers, commercial bills, or treasury bills that expire within 1 year. In the case of money market funds, the fund manager will be clear about the tenure and type of securities to be invested.