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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7.7 Crore

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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

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.

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

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-01-2025

^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 investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).