Finance

Short-term investment plans for income-tax benefits

Nowadays, you may be familiar with several investing options and the tax benefits they provide. But are all investments the same, and will they all result in tax savings for you? The only way to find out is to explore all tax-saving investing options. Many short-term investment plans in India provide adequate returns, but they also involve risks that may not appeal to all types of investors. In this article, we have listed down various short term investment plans that provide both income tax benefits and capital appreciation. The absence of an entry or exit load is what attracts investors to these short-term investment plans. Additionally, capital gains from these plans are tax-free. Let’s discuss them. 

1. Rajiv Gandhi Equity Savings Scheme(RGESS): As one of India’s best-performing short term investment plans, RGESS was founded with the goal of encouraging small investors with little or no experience to invest in domestic capital markets. Initially, the income ceiling for this scheme was Rs. 10 lakh in 2012-2013. However, it was increased to Rs. 12 lakh in 2013-14. Another aspect that distinguishes this plan from other short-term investments is the tax savings under Section 80CCG. Investing in these tax-saving short-term investments entitles you to a 50% deduction from your taxable income, up to a maximum of Rs. 50,000 per financial year.

2. Equity-Linked Savings Scheme (ELSS): ELSS is one of the best investment plans that offer significant tax benefits. Since it has the shortest lock-in period of any tax-saving investment plan-3 years, it is also called the best short term investment plan

3. Debt-based mutual funds: Debt-based mutual funds are short term investment plans that allow you to invest in plans that pay fixed interest, such as corporate bonds and government securities. People prefer to invest in these short-term assets since they can earn fixed interest while also benefiting from capital appreciation. Debt funds are also known as fixed-income securities or short-term investment plans since the interest rate is guaranteed or predetermined by the fund’s issuers. Capital gains from debt funds are taxable depending on the holding term. Therefore, they are not ideal for tax-saving investments.

4. Unit-Linked Investment Plan (ULIP): ULIPs are short-term investment plans that combine the benefits of life insurance and investing. They also offer a flexible method of allocating your investments between stock and debt sections based on market conditions. However, the tax benefits of these short-term investment schemes are subject to specific rules. ULIPs, as a tax-saving investment plan, provide benefits under Section 80C if you continue to pay the premium for at least two years. If you stop paying the premiums for these short term investment plans, you will no longer be eligible for the tax benefits.

5. National Savings Certificate (NSC): The NSC is a tax-saving short-term investment plan backed by the Government of India. More specifically, it is a savings bond designed for low- to moderate-income investors that also provides tax benefits. NSC has two fixed maturity periods: five and ten years. It means that investing in it for five years will yield short-term returns. Your investment in this plan can result in a tax benefit of up to Rs. 1,50,000 under Section 80C. Currently, investing in these short-term investment plans earns you a guaranteed annual interest rate of 8%.

6. Senior Citizens Savings Scheme (SCSS): As the name implies, SCSS is intended for India’s senior citizens. It is an appropriate short-term investment plan for individuals over the age of 60 to earn income. They can contribute to this tax-saving investing scheme through banks and post offices and can get tax deductions up to Rs. 1,50,000 in taxes under Section 80C for these short-term investment plans. The maturity duration of SCSS is five years, making it one of the best investment plans in India

How to Choose the Best Short-Term Investments?

As an investor, you may and should make certain essential decisions before settling on one or a few short-term investment possibilities. It is critical that the best investment plans you choose provide tax benefits while also helping you meet your short-term investing objectives. Consider the following aspects before selecting certain short-term investing plans:

Your investment goals: Plan your investment goals ahead of time because your short-term investing objectives must be met within the next few years, and due to this, your investment should provide you with adequate returns within that time frame. It is important that your goals and the maturity of the investment align together. 

The investment limit: Since you require finances in the short term, choose assets that allow you to invest a substantial chunk of money, which will then be appreciated over the next few years. Discover which options allow you to invest with a lump payment.

Your risk appetite: Most investors choose investment options after determining whether they are appropriate for their risk profile.

Your investment goals: The maximum amount you can invest in short-term investment plans depends on your risk appetite and your financial needs. You can choose between secure, tax-saving investing plans and risky long-term options.

Your financial needs: Before narrowing down the best investment plans, you should first determine your financial needs, just as you would with your goals. This can assist you in determining how much money you’ll need to meet any financial obligations. Be sure to examine your family’s financial needs before making any investment.

Conclusion

Usually, there is a notion that only long-term investment plans provide better returns, but the aforementioned plans can also provide you returns, help you in tax savings and allow you to build a corpus to meet short-term goals. When deciding to invest in one or more short-term investment plans, you need to evaluate a number of factors. A tax-saving investment strategy that is perfect for other people may not be appropriate for your requirements. 

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