Best Short-Term Investment Options
Equity Linked Saving Scheme (ELSS)
ELSS is the most popular and beneficial investment plan. ELSS has a lock-in period of three years, the shortest period of all other investment plans. It offers tax benefits U/S 80C of the Income Tax Act 1961. deduction of up to ₹ 1.5 lakh can be claimed every year from your taxable income by investing in an ELSS scheme. Not only that, but an ELSS also has the potential to generate higher returns than other tax-saving instruments, as it is linked to the stock market's performance. The capital gains from these short term investment plans are tax-free.
Debt-Based Mutual Funds
Debt-Based Mutual Funds are a great way to invest money and earn fixed interest. They are funds that invest in fixed-income securities such as bonds, treasury bills, corporate debentures, and money market instruments. Debt-Based Mutual Funds offer several benefits over other types of investments, such as:
- They are less risky than equity funds, as they are unaffected by stock market fluctuations.
- They provide regular income through interest payments and dividends.
- They have lower tax implications than other fixed-income investments, as they enjoy indexation benefits and capital gains tax exemptions.
- They are suitable for investors with a low-risk appetite and a short-to-medium-term horizon.
National Saving Certificate (NSC)
NSC is a government-backed scheme that offers guaranteed returns and tax benefits. You can invest in NSC for a period of 5 or 10 years and earn interest at a fixed rate. The interest is compounded annually and paid at maturity. Deduction on the invested amount up to ₹ 1.5 lakh can be claimed U/S 80C of the Income Tax Act. NSC is easy to buy and redeem from any post office in India. You can also transfer your NSC from one person to another or from one post office to another.
Unit Linked Investment Plan (ULIP)
Unit Linked Investment Plan (ULIP) is a type of insurance product that combines life insurance and market-linked investment altogether. You can choose from various funds based on your risk appetite and goals. You also get tax benefits under section 80C on your premiums and returns. A ULIP is a flexible and transparent plan that lets you monitor and switch your funds as per your needs. With a ULIP, you can enjoy the best of both worlds: protection and wealth creation.
Senior Citizen Saving Scheme (SCSS)
Senior citizen saving scheme (SCSS) is a government-backed scheme that offers senior citizens attractive interest rates and tax benefits. You can open an SCSS account with any post office or bank authorized by the government. You can deposit up to 30 lakhs in your SCSS account and enjoy a fixed interest rate of 8.2% annually. This interest rate is applicable from 1st April 2023 until 30th June 2023. The interest is payable quarterly and is fully taxable. The maturity period of SCSS is 5 years, which can be extended by another 3 years once. You can also avail of a loan facility against your SCSS account up to 75% of the deposit amount. SCSS is one of the best investment options for senior citizens who want to secure their future and earn a regular income.
Tax Saver Fixed Deposits
These special fixed deposit types offer tax benefits U/S 80C of the Income Tax Act. ₹ 1.5 lakh can be saved annually by investing in these deposits with a guaranteed return on your investment, usually higher than the regular savings account interest rate. Tax Saver Fixed Deposits are safe, secure, and convenient. You can open them online or offline with any bank or financial institution. You can choose the tenure of your deposit from 5 to 10 years, depending on your financial goals and needs.
Fixed Maturity Plans (FMPs)
FMPs are close-ended debt mutual funds that invest in securities with a fixed maturity date. They offer you a fixed income for a fixed period. Usually, one-month to five-year FMPs are ideal for investors who want to avoid market volatility and lock in their money at prevailing interest rates. FMPs also have tax benefits under Section 80C of the Income Tax Act. FMPs are a smart way to diversify your investments and earn steady returns without taking much risk.
Public Provident Fund (PPF)
Public Provident Fund (PPF) is a great way to save money and earn interest. It is a government-backed scheme that allows you to invest up to ₹ 1.5 lakh per year and get tax benefits. You can open a PPF account in any bank or post office and deposit money for 15 yea₹ The government fixed the interest rate every quarter, which is compounded annually. You can also extend your account for another 5 years after maturity. PPF is a safe and secure investment plan to help you fulfill your long-term financial goals.
Savings Account
Savings accounts indeed represent one of the most common and versatile short-term investment options available. One of the key advantages of savings accounts is the convenience they offer, especially with features such as debit cards linked to the accounts. These debit cards provide easy access to funds, allowing account holders to make payments and withdrawals conveniently.
However, while savings accounts provide liquidity and accessibility, they may not be the most suitable option for parking funds intended for specific payments or short-term goals. The frequent usage of savings accounts for day-to-day expenses can inadvertently affect the lump sum amount earmarked for other purposes.
Moreover, in terms of the rate of return, savings accounts in India typically offer interest rates ranging from 2% p.a. to 7% p.a. While these rates provide a nominal return on deposited funds, they may not keep pace with inflation or provide significant growth over time.
Recurring Deposits (RDs)
A Recurring Deposit (RD), commonly referred to as an RD, is a specialized term deposit offered by Indian banks. It serves as an investment tool that enables individuals to make regular deposits and earn returns on their investment over time. The unique feature of RDs lies in their flexibility and ease of use, making them an attractive option for many investors.
Unlike Fixed Deposits (FDs), which require a lump sum deposit upfront, RDs allow account holders to make regular deposits at predetermined intervals, typically monthly. This regular deposit feature offers flexibility to investors, allowing them to contribute smaller amounts regularly towards their investment goals.
One of the key benefits of RDs is the combination of savings and investment they offer. By consistently depositing funds into an RD account, individuals can gradually build up their savings while also earning interest on their deposits. This makes RDs an ideal instrument for those looking to cultivate a disciplined savings habit while also generating returns on their investments.
Post Office Time Deposits
The Post Office Fixed Deposit (POFD) is a deposit scheme that is offered by Indian Postal services. This is also known as Post Office Time Deposit. This is a sort of investment through which an individual can earn a guaranteed return on the amount he or she deposited for a fixed period of time. Depositors get benefits of tax deductions on the interest they earn from this investment.
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