Short-Term Investment Funds (STIF): Definition, Examples, and Benefits


Short-term investment funds (STIFs) are highly liquid, low-risk investment options known for their conservative nature. These funds offer higher returns compared to regular savings accounts and are often linked to Treasury bill indexes. This article explores the ins and outs of STIFs, their benefits, key features, and notable fund providers. Whether you’re a novice or an experienced investor, understanding the world of short-term investment funds can help you make informed financial decisions.

What Is short-term investment fund (STIF)?

A Short-Term Investment Fund, often referred to as STIF, is a financial vehicle that specializes in short-term money market investments. These investments are typically of high quality and low risk, making STIFs one of the most conservative options in the financial industry. They are designed to provide safety and liquidity to investors while offering marginally higher returns compared to standard personal savings accounts.

Understanding short-term investment funds

STIFs are highly liquid accounts, which means investors can access their funds with ease. They often provide personal checks and online access for making deposits and withdrawals. Some STIFs offer daily liquidity, allowing investors to manage their money conveniently. These funds are widely considered safe and are ideal for individuals looking to protect their capital while earning a reasonable rate of return.

Short-term investment funds typically include a mix of assets such as cash, bank notes, government bills, and conservative bond holdings. These holdings are categorized as safe short-term debt instruments. To gauge their performance, many STIFs benchmark their returns to a Treasury bill index, providing transparency and confidence to investors.

Types of short-term investment funds

Short-term investment funds come in various forms, catering to the diverse needs of investors. Let’s explore some common types:

1. Money market funds

Money market funds are the most prevalent type of short-term investment funds. These funds primarily invest in short-term, high-quality debt securities such as Treasury bills, commercial paper, and certificates of deposit. They are known for their stability and liquidity, making them a popular choice for individuals and businesses looking to preserve capital while earning modest returns.

2. Short-term bond funds

Short-term bond funds focus on short-duration bonds with maturities typically ranging from one to five years. While they offer slightly higher yields compared to money market funds, they also come with slightly higher risks. These funds are suitable for investors with a slightly higher risk tolerance and a short to intermediate-term investment horizon.

How to invest in short-term investment funds

Investing in short-term investment funds is a straightforward process. Here are the typical steps:

1. Choose a fund provider

Select a reputable fund provider or financial institution that offers short-term investment funds. Ensure they have a range of funds that align with your financial goals and risk tolerance.

2. Open an account

Once you’ve chosen a fund provider, open an investment account. This may involve providing personal information and completing the necessary paperwork. Some providers offer online account setup for added convenience.

3. Select the right fund

Review the available STIF options and select the fund that suits your investment objectives. Consider factors like the fund’s historical performance, fees, and minimum investment requirements.

4. Fund your account

Deposit the desired amount into your STIF account. The minimum initial investment may vary depending on the fund provider, so be sure to meet this requirement.

5. Monitor and manage

Keep an eye on your short-term investment fund and regularly review your investment strategy. You can make additional deposits or withdrawals as needed to align with your financial goals.

Example: Short-term investment strategy

Let’s consider an example to illustrate how an investor might incorporate short-term investment funds into their financial strategy:

Meet Sarah:

Sarah is a 35-year-old professional who has recently received a significant bonus at work. She wants to make the most of this windfall while ensuring her funds are readily available for other opportunities, such as a down payment on a new home in the next year. Sarah decides to allocate a portion of her bonus to a short-term investment fund.

Steps Sarah takes:

1. Research and select STIF

Sarah researches reputable fund providers and selects a short-term investment fund known for its stability and liquidity, ensuring she can access her funds when needed.

2. Open an account

She opens an account with the chosen fund provider, completing the necessary paperwork online, and funding her account with the allocated portion of her bonus.

3. Regular monitoring

Sarah regularly monitors her STIF and keeps her financial goals in mind. She knows that she can make withdrawals at any time if she decides to use the funds for her new home’s down payment.

By incorporating short-term investment funds into her financial strategy, Sarah can preserve her capital while earning a reasonable return, all within a highly liquid and accessible investment vehicle.

Risks and considerations

While short-term investment funds offer numerous advantages, it’s essential to be aware of potential risks and considerations:

1. Market risk

Although STIFs are low-risk, they are not entirely risk-free. The value of underlying investments can fluctuate, affecting the fund’s net asset value.

2. Inflation risk

STIFs may not always outpace inflation, potentially leading to a loss of purchasing power over time.

3. Interest rate risk

Changes in interest rates can impact the returns of short-term investment funds, especially for those investing in bonds and debt securities.

4. Fees and expenses

While STIFs generally have low fees, it’s crucial to understand and factor in any associated costs when assessing their overall performance.

Investing with confidence

Short-term investment funds serve as a reliable and convenient option for individuals and businesses looking to protect their capital while earning a reasonable return. By understanding the types of STIFs, the investment process, and potential risks, investors can make informed decisions and create a well-balanced investment strategy.

Benefits of short-term investment funds


Here is a list of the benefits and drawbacks to consider.

  • Higher returns than standard savings accounts.
  • Daily liquidity for easy access to funds.
  • Conservative and low-risk investment option.
  • Ideal for capital preservation.
  • Many STIFs benchmark their returns to Treasury bill indexes for transparency.
  • Returns may be lower compared to riskier investment options.
  • Limited growth potential compared to long-term investments.
  • Some STIFs may have minimum investment requirements.

Short-term investment fund managers

Money market funds are the most widely recognized form of short-term investment funds. Various investment providers offer a diverse range of money market funds to cater to different investor preferences. Here are some notable examples:

  • Schwab: Schwab offers a range of Purchased Money Funds grouped into three categories: prime, government and treasury, and municipal.
  • Vanguard: Vanguard provides two taxable money market funds and three non-taxable municipal funds.
  • JPMorgan: JPMorgan offers six money market funds to suit different investor needs.
  • American Century: American Century provides six funds in its money market category.

Why consider short-term investment funds?

Investors often opt for short-term investment funds as a means to temporarily park their capital before deploying it into other investments like stocks or mutual funds. The reasons behind this choice are manifold:

  • Capital preservation: STIFs are known for their capital preservation capabilities, making them ideal for safeguarding funds during market uncertainties.
  • Liquidity: Daily liquidity and easy access to funds make STIFs a flexible choice for investors who need their capital at their fingertips.
  • Low transaction costs: These funds generally have low transaction costs and minimal management fees, often below 1% per year, ensuring that investors retain a substantial portion of their returns.


Short-term investment funds (STIFs) are a valuable addition to an investor’s portfolio, offering safety, liquidity, and reasonable returns. While they may not match the growth potential of long-term investments, STIFs play a crucial role in preserving capital and providing quick access to funds when needed. It’s important for investors to carefully consider their financial goals and risk tolerance when deciding to invest in STIFs or other financial instruments.

Frequently asked questions

What distinguishes short-term investment funds from regular savings accounts?

Short-term investment funds offer investors higher returns than conventional savings accounts. They are also recognized for their liquidity, providing more accessible means to your funds.

Are there any restrictions on how often I can make deposits and withdrawals from a Short-Term Investment Fund?

No, many short-term investment funds offer daily liquidity, enabling you to make deposits and withdrawals as often as you require. This flexibility makes them a convenient option for managing your finances.

Can I use Short-Term Investment Funds for long-term financial goals?

While short-term investment funds are primarily designed for short-duration investments, some investors incorporate them into long-term strategies to maintain liquidity. However, they may not offer the growth potential of long-term investments.

What should I consider when choosing a Short-Term Investment Fund provider?

When selecting a provider, assess factors such as their reputation, the range of available funds, historical performance, fees, and minimum investment requirements. These elements play a crucial role in your investment experience.

How can I monitor the performance of my short-term investment fund?

You can monitor your fund’s performance by reviewing regular statements provided by your fund provider. Additionally, you can access online platforms to track your investment’s progress and make informed decisions about your financial goals.

Key Takeaways

  • STIFs offer higher returns than standard savings accounts and are highly liquid.
  • Investors can access their funds daily and manage their investments conveniently.
  • STIFs are known for capital preservation and minimal management fees.
  • Money market funds are a popular type of STIF, with various providers offering diverse options.
View Article Sources
  1. Best Short-Term Business Loans for 2023 – SuperMoney
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