When it comes to planning and investing with money for 3 months, there's only one thing on the agenda: securing it with the least amount of time and the highest amount of return compared to a standard savings account. Three months is too short to expect equity to be a reasonable investment; it's too short to expect for the returns to be spectacular, so the motive is not growth. It's safeguarding what you've got, remaining liquid, and getting a steady, modest return in the process.
This guide explains 10 short-term investment products that are available in India for a period of 3 months, starting from a 3 month FD and 91-day treasury bills, liquid funds, overnight funds, money market funds and a couple of higher-yielding options with some drawbacks at this time horizon. It should help you determine where to invest if you're holding a bonus, tax refund or fee money for 3-4 months or looking to compare 3-4 months investment plans for an upcoming expense.
Best 3 Months Investment Plan in India
1. 3-month fixed deposit
One of the simplest short term investment plans for 3 months in India is a 3-month Fixed Deposit. Investors put a set amount with a bank for a set time, and get a fixed rate of interest.
If you are an investor that does not want you to see the market changes, you can expect to know what you will get when you invest in a short-duration FD.
The interest rates of the banks vary according to customer category, amount, and tenure.
Strengths
Fixed monthly repayments and fixed interest rates.
Suitable for investors prioritising capital protection.
Simple to comprehend and accessible.
Risks Returns may be less than market linked products. Withdrawing too early can result in less interest benefits. Best For Investors with a definite goal in mind that they will need to use within 3 months. Someone who is looking to get into a short-term investment. Conservatives who wish to not experience the volatility of the markets. Expected Returns Rates are around 3-7% a year based on the bank, prevailing interest rates and type of deposit. Overnight mutual funds are mutual funds that invest in securities that have one day maturity. They are primarily suited for investors who wish to park their money for a short period of time and have a high liquidity requirement. Corporates, institutions and conservative investors typically keep their short-term cash balances in these funds. Strengths Very low credit and interest rate risk. The liquidity is high compared to many fixed-income products. Adequate for short term parking. Risks Usually, returns on debt funds are less as compared to longer duration debt funds. Rates of return are based on the overnight market rates. Best For Investors who are anticipating better investment opportunities. Pay parking for a couple of weeks or months. Emergency funds that need to be accessed promptly. Expected Returns Tends to move in tandem with short-term interest rates and money market conditions. Liquid funds take up short maturity debt instruments like treasury bills, commercial papers, certificates of deposit. Liquid funds can offer flexibility for investors who want alternatives to their savings account, but without the high risks. Strengths High liquidity and fast redemption facilities. Appropriate for a short term cash management. Multiple short term instrument diversification. Risks There are no guarantees to returns. Debt funds have credit and interest rate risk. Best For Investors who require one's access to cash in the coming few months. Building emergency reserves. Park surplus funds for a short time. Expected Returns Typically follows the short term interest rate and the market. 91-day Treasury Bills are short-dated government securities issued by the Reserve Bank of India on behalf of the Government of India. They are regarded as among the most secure fixed-income investment products to invest in due to their sovereign support. Strengths Supported by the Government of India. Low default risk. Appropriate for traditional investors. Risks Returns may be less than the returns of more risky investments. The sale of an investment prior to maturity may be subject to market conditions. Best For Investors prioritising safety. Significant, one-time funding. Investors willing to take government securities. Expected Returns Returns are based on the T-Bill yields at the time of purchase. One of the most convenient short-term savings tools is the savings account, since investors will have instant access to their funds. Generally the rates are lower but when it comes to convenience and liquidity, it can prove useful for emergency cash. Strengths Quick withdrawal of cash. No market-related risk. Simple and convenient. Risks Lower returns than in investment products. Over time, inflation can diminish your purchasing power. Best For Emergency cash requirements. Money needed anytime without restrictions. Expected Returns The bank will vary from about 2.5% to 7% per year. A Sweep-In FD is a type of FD that is flexible like a savings account, but pays a higher interest than a standard FD. In this facility, if the balance exceeds a specific limit, then the amount is automatically turned into an FD. If money is needed, the bank splits up a portion of the FD to finish the transaction. Sweep-in facilities are options for investors who desire a certain level of liquidity, but do not want their investment "idle" in a low interest savings account. Strengths Offers a higher rate of return than an excess savings account. Keeps liquidity through withdrawals that are partial. Automatically moves money around any surplus. Risks Different banks offer different rates of interest. The interest benefits may be less if FD portions are broken before maturity. Best For Employment Income: Salaried professionals with emergency savings. Companies with excess funds and a need to invest in the short term. Investors who want flexibility with safety. Expected Returns The bank and prevailing FD rates vary, but it is about 5% – 7% per annum. The money market funds invest in money market debt instruments which are short-term debt instruments like treasury bills, commercial papers, certificates of deposit etc. The objective of these funds is generally to preserve the stability of the portfolio and earn returns on short-dated investments. Investors with a 3-month time horizon may consider money market funds instead of traditional savings products. Strengths Purchases money-market funds. Higher liquidity than conventional fixed-income securities. Appropriate for temporary fund use. Risks Returns are not guaranteed but are based on the market. The risk of the credit depends on the underlying securities. Best For Investors who are comfortable with the mutual fund concept. Short-term cash management. Investors who do not stick to saving accounts or FDs. Expected Returns Usually following short-term interest rates. Ultra short duration funds are those that hold debt or money market securities that have a slightly longer duration. They are trying to achieve relatively higher returns at limited interest rate sensitivity. Investors must be aware that these are market linked products and returns may vary. Strengths Can offer greater returns than savings accounts. Diversification of the portfolio of short-term debt instruments. Appropriate for investors with a short time frame. Risks Guarantee of returns is not provided. Exposure to changes in credit quality and interest rates. Best For Investors who are willing to take minor changes. People with a 3-to-12 month investment time frame. Those who want to invest in other avenues than fixed deposits. Expected Returns Generally returns follow short term bonds yields and market conditions. Arbitrage funds try to take advantage of the price difference between the cash market and Futures market. The philosophy behind these funds is to invest mostly in arbitrage opportunities between equities with relatively less directional equity exposure. They are often considered by investors looking for tax-efficient short-term investment options. Strengths Can offer tax advantages in the current tax system. Reduces risk of market direction in funds compared with pure equity funds. Appropriate for temporary parking of funds. Risks Returns are subject to availability of arbitrage opportunities. The performance may differ in various market conditions. Best For Higher tax bracket investors. Investors seeking other options to debt funds. Investors who are in for the long haul and are not seeking to actively manage their fund. Expected Returns Traditionally associated with opportunities for market arbitrage and short-term interest rates. STDFs invest in relatively short-term bonds and fixed-income securities. Their aim is to give investors a higher return than traditional deposits, but without equity exposure. Investors should carefully consider interest rate risk and credit quality prior to investing for a three-month time horizon. Strengths Expert handling of fixed-income investments. Spread investment in debt securities. Appropriate for investors looking for moderate stability. Risks Risk of loss of credit of underlying issuers. Changing the interest rate may affect NAV. Best For Investors with a slightly higher degree of risk tolerance. The investors who are not interested in fixed deposits. Individuals who are familiar with the mutual fund products. Expected Returns Returns are dependent on the interest rate cycles, the quality of the portfolio and market conditions. Investment Objective: Recognize the purpose of investing for 3 months. Emergency or fixed needs should be given first priority for safety and if there are more funds than needed, consider slightly higher-return investments. Safety of Capital: When investing for relatively short periods, it's often more critical to preserve the original investment than to maximize returns. Don't risk equity for cash that's required on a timeline other than necessary. Liquidity Requirement: Select investments that are easily accessible if there are fluctuations in your financial situation. Don't invest emergency funds in products that have complex withdrawal restrictions. Expected Returns: Moderate returns are usually expected for short-term investments. It can be tempting to compare products by return percentage only, which can lead investors to inappropriate levels of risk. Risk Appetite: Risk is not constant within any investment time frame. Overnight funds and government securities are less risky than the market-linked debt products. The Best 3 Months investment plan in India depends on the purpose of the investor, liquidity requirement, and the risk preference of the investors. Investors who look for safety may want to consider 3-month fixed deposits, savings accounts, overnight funds, and treasury bills. Liquid funds, money market funds, ultra short duration funds and arbitrage funds may be options for investors looking for a slightly better return potential but with control on risk. A 3-month time frame is not suitable for aggressive wealth building. The goal ought to be efficient money administration, which is to shield the capital, make it readily available and obtain reasonable returns. Investors are advised to consider the purpose of their investment, taxation, withdrawal conditions and risk before choosing any investment plan with a 3-month time period.2. Overnight Mutual Fund
3. Liquid Mutual Fund
4. 91-day Treasury Bills (T-Bills)
5. Savings Account
6. Sweep-In Fixed Deposit (FD)
7. Money Market Fund
8. Ultra Short Duration Fund
9. Arbitrage Fund
10. Short-Term Debt Fund
3 Month Investment Plan: Comparison Table
Factors to Consider Before Choosing a 3 Months Investment PlanConclusion