Want to Save Tax? 7 Best Short Term Investment Options in India

Every year there comes a time when you get constant reminders from the employers, tax professionals, which mean the season of tax has begun. This is also the time when most likely you will try and collate subtleties in regards to the short term investments and long-term as well that will give the opt idea of where the money has been invested.

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58.9 Million

Registered Consumer

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Before we get into understanding the various types of short term investment plans, let us primarily begin with understanding what short term investment plans are.

What do you mean by Short Term Investment Plans?

The short term investment plans are essentially liquid investments where the investors will park the savings for durations that are small and access returns on the equivalent. In case you do not know, the short term investment options let you earn tax benefits too.

Now let us discuss some of the best short term options with tax benefits.

Unit Linked Insurance Plan

The unit linked insurance plans are the short term investment plan, which provides double advantages of both investment and insurance. It provides the flexibility to balance the investments following the condition of the market between the debt components and equity. Though, it does have tax benefits that come along with specific restrictions. If you are unaware then the ULIP is considered to be tax saving investment, which offers benefits within Section 80C wherein the premium for the same should be paid for a minimum of two years. In case you are unable to pay the premium sum, no tax benefits will be offered within such a short term investment plan.

Equity Linked Insurance Plan

The significant part of the equity-linked insurance plan is that it is an investment scheme, which is diversified and offers tax-saving benefits. This is also referred to as tax-savings funds. Moreover, such an investment plan lets you invest in equities and has a lock-in term of three years that is the least of the tax-saving investment schemes and capital appreciation. It remains an opulent option for the investors as there is an absence of exit and entry load and the capital gains also remain tax-free.

Debt-based Mutual Funds

If you are looking forward to a short term investment, which generates fixed interest then surely you should consider the debt-based mutual funds such as government securities, the corporate bonds, and so forth. Investing in such a plan will help you to take advantage of capital appreciation and earn fixed interest as well. This also called as fixed-income securities and let you have an interest as per the promised rate or it has been decided by the fund issuers. It also remains a safe option for risk-averse investors. Upon the holding period, the capital gains from the debt fund are also taxable and this is why it does not fit into the tax-saving investment plan exactly.

Fixed Maturity Plans

The fixed maturity plans are the close-ended debt funds, which have a fixed maturity period. The tenure for the same differs from thirty days to five years. However, it is to be noted that it is unlike fixed deposits. Investing in this short term investment for longer than a year, you can take advantage of indexation to influence the tax liability against rates of inflation. Moreover, the fixed maturity plans also work as an allocation of asset instrument for investors.

Senior Citizen Saving Scheme

The senior citizen savings scheme is specifically designed and caters to the senior citizens. Any senior citizen above 60 years of age and avail this tax saving investment scheme through Indian post offices or any of the Indian banks. Within this short term investment, a claim deduction of Rs 1.5 lakh within Section 80C can be easily claimed. The maturity term is of five years and makes it the best short term investment for the senior citizens.

National Saving Certificate

The national saving certificate is backed by the Indian government, which is specifically met for mid-income investors. It is more like a savings bond that provides tax benefits and can be availed by nearby Indian post offices either in your name or can also go for a joint account. The fixed maturity term for the national savings certificate is five or ten years. For instance, if you invest for 5-years then it will enable you to earn the tax benefit of Rs 1.5 lakh within Section 80C. Presently, you will obtain a fixed interest of 8% every year upon investing in such a short term investment.

Fixed Deposits Tax Saver

As the name suggests, the tax saver fixed deposits is a tax saving plan, which comes certain tax benefits within the Section of 80C Income Tax Act. These plans have a lock-in period of 5 years and you can obtain a deduction of Rs 1.5 lakh. The interest earned upon these short term investment will be taxable. The short term investment plan yields higher returns when compared to a savings account.

How Do I Select the Best Short Term Investment Plan?

When it comes to selecting a short term investment plan certain aspects should be taken into consideration to make the best decision: Listed below are the criteria to be noted to choose the best short term investment plans:

The investment objectives
The risk appetite
The financial requirements
The maximum limit of the sum that has to be invested in such a plan

Select the short term investment, which is safe and helps you to save taxes. Moreover, it is prudent to completely understand the risk-return off for the plans before you make the final call of investment.

The Bottom Line

Make the selection of the best tax saver options to save tax and earn tax-free income. However, this does not mean that it will be equivalent in terms of the features or the class of assets.

So, give some time, do the research and make the right choice of best short term investment.

Helpful Resources: Kotak Life insurance | ICICI Life insurance | SBI Life insurance | Max Life insurance

Past 5 Year annualised returns as on 01-09-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.