Financial planning is all about thinking about long-term investments. However, several needs need to be met in the short-term as well. This is why short-term investments are also as important as long-term investment plans. What’s more, several short-term investment options also offer tax-saving benefits. There are several instruments to choose from if you are looking for short term investments that can help you save some tax:
- ELSS or Equity Linked Savings
Equity Linked Savings is a form of diversified mutual fund which invests in the equity markets and offers tax benefits as well. ELSS is the perfect choice if you want to invest and gain maximum tax benefits as it has a relatively short lock-in period of 3 years. You can save up to INR 1, 50,000 in taxes every year through ELSS. You can also get market-linked capital appreciation through ELSS and the capital gains through the same are also tax-free.
- Rajiv Gandhi Equity Savings Scheme or RGESS
This scheme has been specifically designed to give maximum tax benefits to all those equity investors who want to invest in domestic capital markets. This scheme has a total lock-in period of 3 years, with one year of fixed lock-in and flexible lock-in for the next two years. If you are someone who is looking for a flexible short-term investment, the RGESS scheme may be ideal for you.
- Health Insurance
Health insurance acts as a safety net, which can be useful when an unexpected cost arises due to medical emergencies or any other expenses related to hospitalisation. The premium which you pay towards health insurance would be exempted from tax. Up to INR 30,000 for senior citizens and about INR 25,000 for yourself and other family members can be claimed for deductions using this method.
- Single-Premium Life Insurance
This insurance would offer the dual benefit of life cover as well as an investment. You would only have to pay once for this insurance and enjoy the benefits until the entire duration of the insurance policy. The amount which you pay as premium would be eligible for the tax deduction as well. With a ceiling limit of up to INR 1, 50,000, a tax deduction of about 10% of the assured sum would be allowed in a single premium life insurance scheme.
- Debt-Based Mutual Fund
Through debt-based mutual funds, you can expect a fixed return on the primary investments in the money market. This is an ideal alternative to the bank fixed deposits for risk-averse investors. What makes this a good option is that it promises about 7-8% post-tax returns, provided the debt-fund is well-performing. The dividends which you earn through this investment would also be tax-free.
Short-term investments are an excellent option for saving up money and earning a decent return instead of locking them up in bank accounts. If you have an instant loan for making down-payment on your home, you eligible for deductions as well. You can choose any of these short-term investment tools based on your primary goal and the amount of financial risk you are willing to take and make sure that even when you aren’t working, your money is doing the work for you.