Every year, tax professionals and employers send reminders to remind you that tax season is underway. This is when you gather information about all of the short and long-term investment plans you have made. Let’s start by understanding what short term investment plans are before we can compare the best options.
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What are short-term investment plans?
Investing in short term plans is liquid. Investors can store their savings and get returns. You can get good returns for a short time, as well as tax benefits. We will be looking at the top short-term investment plans that provide tax benefits. Take a look at the various short-term investments that are available.
Best Short-Term Investment Plans With Tax Benefits
These are the top short-term investments that will provide you with tax benefits and good returns.
- Equity Linked Saving Schemes (ELSS).
- Rajiv Gandhi Equity Savings Scheme, (RGESS).
- Mutual Funds based on Debt
- Unit Linked Investment Plan (ULIP)
- National Saving Certificate (NSC).
- Senior Citizen Saving Scheme (SCSS)
- Fixed Deposits for Tax Savings
- Fixed Maturity Plans
1.Equity Linked Saving Schemes (ELSS)
ELSS is a diversified mutual fund investment scheme that provides significant tax-saving benefits. These funds are also known as tax-saving funds. ELSS is a short-term investment plan that invests mainly in equities. This makes it one of the most attractive. ELSS locks in for 3 years which is the shortest of all tax-saving investment plans.
These short-term investment plans offer capital appreciation and income tax benefits. These short term investment plans are popular because there is no entry or exit load. These short-term investment plans also allow capital gains to be tax-free.
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2. Rajiv Gandhi Equity Savings Scheme, (RGESS).
RGESS is one of the most successful short-term investment plans in India. It was established with the goal to encourage small investors, with no or little experience, to invest in the domestic capital markets. Initial income limit for this scheme was Rs. In 2012-2013, the income ceiling was Rs. 10 Lakh. This limit was then raised to Rs. 12 Lakh in 2013-14 [2].
This scheme is distinguished by the Section 80CCG tax benefits. You can get a 50% deduction from your taxable income for investing in these tax-saving short term investments. Maximum of 50,000 per financial year
3. Mutual Funds based on Debt
The short-term investment plan of debt-based mutual funds is one that allows you to invest in instruments that pay fixed interest such as government securities and corporate bonds. These short-term investments are popular because they offer fixed interest and capital appreciation.
Fixed-income securities are also known as debt funds. These funds allow you to earn interest at the rate that is promised by the fund issuers.
The returns of debt funds are generally within the range that was predicted by issuers. This makes them safe investments for risk-averse investors who don’t mind short term volatility. Capital gains from debt funds can be taxable depending on their holding period. This is why they are not considered tax-saving investments.
4. Unit Linked Investment Plan (ULIP)
ULIPs offer unique, short-term investment plans that combine the benefits of investment and life insurance. These plans allow you to mix and match equity and debt components depending on market conditions. These short-term investment plans have certain limitations.
ULIPs are a tax-saving investment plan that offers benefits under Section 80C [3], if you continue to pay the premium for at most two years. You will not be able to receive the tax benefits if you stop paying the premium for these short-term investment plans.
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5. National Saving Certificate (NSC).
NSC is a short-term tax-saving investment plan that is supported by the Government of India. It is a savings bond that offers tax benefits for low- to middle-income investors. These short-term investment plans can be accessed via the nearest post office.
NSC has two maturity periods: five years and ten. If you invest for five years, it will be able to work as a short-term investment. You can get a tax break up to Rs. 1,50,000 under Section 80C. You currently get fixed interest at eight percent per year for investing in these short-term investment plans.
6. Senior Citizen Saving Scheme (SCSS)
SCSS, as the name implies, is for senior citizens of India. This is a good choice for short-term investment plans for those over 60 who want to make money. This tax-saving investment plan can be accessed through banks or post offices.
These short-term investment plans allow them to claim a tax deduction up to Rs. 1,50,000 under Section 80C. SCSS has a maturity period of five years which makes it a suitable investment plan for seniors.
7. Fixed Deposits for Tax Savings
Tax Saver Fixed Deposits are a tax-saving investment plan that offers tax benefits under Section 80C. You can claim a deduction up to Rs. These short-term investment plans have a five year lock-in period and can be used to invest up to 1,50,000.
You should be aware that these short-term investments will result in taxable interest. The short-term investment plans can yield higher returns than savings accounts.
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8. Fixed Maturity Plans, FMPs
FMPs are closed-ended debt funds with a fixed maturity. FMPs are short-term investment plans. Their tenure ranges from 30 days up to 5 years. They are tax-saving investment plans that differ from fixed deposits. Indexation can be used to reduce your tax liability by influencing the inflation rates when you invest in these investment plans for a shorter term than one year. FMPs are not only a short-term investment plan, but also serve as an asset allocation tool.