Top 5 Short-Term Investment Options

‘Short-term’ plans may include investments ranging from a couple of months to several years. By definition, any investment that lasts for up to five years is considered a short term investment plan. This category of investment plans is usually accompanied by a low yield or high degree of risk depending upon the kind of investment. Short term investment plans are an excellent way of making a profit by making use of liquid assets.

If you are planning to invest in your future, a quick read through this article might help you to make a better decision by providing an insight into short-term investment plans.

What are Short-Term Investments?

Short-term investments aka marketable securities are investment options that are easy to liquidate and hence can be converted to cash, typically within 5 years or less. Very often short term investments are converted to cash after a period of 3 months to 12 months depending upon their liquidity.

Government bonds, high interest yielding savings accounts, money market accounts and treasury bills are some common examples of short term investments. One common feature in all short term investment vehicles is their high liquidity.  

For companies and businesses, there are two major requirements to classify an investment in the short-term. First, it should be liquid, similar to a stock listed on the stock exchange and second, the management of the company must intend to convert the investment within 12 months or less.

The primary objective of short-term investment for an individual or company plans is to protect capital and simultaneously generate returns. Companies that are in a strong cash position should ideally include short term investment plans on their balance sheets. This will allows the organization to invest excess cash in options like stocks, bonds, to earn higher rates of interest that would be earned from normal savings bank accounts.

Short-Term Investment Options

Short-Term investment plans are set to fulfill financial needs that occur shortly. Although the typical tenure for short term investment plans is 12 months, some options extend up to 5 years.

The list below covers the top 5 short-term investments in the UAE-

Savings Account

One of the simplest and the oldest ways of parking excess cash has been savings bank accounts. Banks typically offer 4 to 7% interest on savings but maintain the liquidity of the investment thereby serving the overall purpose of short term investments.

Liquid Funds

Liquid funds are similar to mutual fund programs that invest in government certificates and securities. These options are quite flexible and allow investors to enter or exit the investment plan at any instant as their capital is secure. Financial advisors recommend investing chunks of emergency funds to ensure financial cushioning. Liquid funds, in general, are safe investment options and it is very rare to observe a dip in the net asset value (NAV) of these funds.

Short-term funds

Short-term funds include investment plans that typically mature in 1-3 years. When compared to other options these are a bit risky as the maturity period is very short. Banks provide deposits of varying periods ranging between -couple of days to several months.

While liquid funds are suitable for parking funds securely for some days, short-term funds are suitable for tenures spawning for a few months.

Fixed maturity plans

Fixed maturity plans usually come with a lock-in period of 3 years and function very similar to fixed deposits.

Recurring deposits

Recurring deposits is an investment plan that is meant for investors willing to invest monthly instead of investing in a lump sum. Recurring deposits provide good rates of interest and help to accomplish short term goals.

Conclusion

Financial experts consider short term investment plans the ideal approach to build a strong investment portfolio because they are easy to manage and reap huge returns. The article discusses the top 5 short term investment options that you can choose as an investor in the UAE.