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5 Short Term Investment Plans For Availing Tax Benefits

 
 

Warren Buffet, considered as one of the most successful investors in the world, says, "Do not put all your eggs in the same basket."

Your investment portfolio should have a good mix of conservative, balanced and aggressive investment options, including government backed avenues. However, most people still keep their money idle in a savings account, where it earns a nominal 3.5%. per annum, on average.

If you are lost amidst the many investment advertisements around you, here is a well-researched list of options to put aside your money for the short term (1 to 3 years).

Financial InstrumentDescriptionBenefits
Equity Linked Saving Scheme (ELSS)ELSS is a type of diversified mutual fund that invests in equity markets and offers tax benefits under Section 80C.ELSS has a short lock-in period of three years, making it ideal for short-term tax-savings.

Along with tax-savings of up to Rs. 1,50,000 per annum, ELSS offers market-linked capital appreciation. The capital gains are tax-free as well.
Health InsuranceWhile Health Insurance is not an investment, is a safety net that protects you and your loved ones against unexpected costs arising from medical emergencies, as well as planned medical expenses related to hospitalization.The premium paid towards health insurance; whether for self, spouse, children, or parents; is exempt from tax, subject to certain terms and conditions.

A deduction of up to Rs. 30,000 for senior citizens, and up to Rs. 25,000 for others, can be claimed under Section 80D.
Rajiv Gandhi Equity Savings Scheme (RGESS)RGESS is a tax saving scheme designed for equity investors in the domestic capital markets.RGESS has a lock-in period of three years, with a fixed lock-in for the first year and flexible for the next two years. This is ideal for those looking for flexible short-term investments.

50% of the amount invested, subject to a maximum investment of Rs. 50,000, is eligible for deduction under Section 80CCG.
Debt-Based Mutual FundsDebt-based mutual funds primarily invest in money market instruments such as corporate bonds, treasury bills, government securities, etc., and provide a fixed return.

Such funds are tax-efficient alternatives to short-term bank fixed deposits and are ideal for risk-averse investors.
Well-performing debt funds can offer 7-8% post-tax returns, making them an ideal short-term investment option.

Unlike bank FDs, debt-based funds do not levy a premature withdrawal penalty. These funds also offer indexation benefits if the units are held for over a year. Moreover, the dividends earned are tax-free.
Single Premium Life InsuranceA single Premium Life Insurance policy offers dual benefits of investment and life cover. You only need to pay once and the benefits are available for the entire policy duration.The amount paid as premium is eligible for tax deduction under Section 80C. Annual premium upto a maximum of 10% of sum assured is allowed as tax deduction subject to a maximum ceiling limit of Rs 1,50,000.

 

Based on your goals and financial risk appetite, you can choose an investment vehicle that meets your requirements. Short-term investments are good for parking money until you need it, instead of letting it sit in bank accounts, earning minimal returns. Many of these offer decent returns as well as tax savings. On the other hand, long-term investments are more suited for wealth creation along with regular tax savings.

 
 
 

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