Want to Save Tax? 5 Best Short Investment options in India

Short-term investments are preferred bet because the money is not locked in for a long period. These are temporary investments and mostly have a period that is within five years. For a shorter duration, your money is safe and parked to bring in some extra cash.

What are short-term investments by the way?

The characteristic feature of the investment is the period. Plus, you can earn a decent return within a year or some months. Besides, helping save money, this type of investment is helpful when you have some immediate expenses shortly.

One of the aspects of the investor is that they do not have the patience to wait for years for their money to get parked and multiply. So, short-term investments are good but do not expect substantial results as the case is with long-term investments. 

What are the five top short-term investments in India?

1. Large-cap Mutual Funds

What are large-cap companies? These are companies that have a market cap of INR 20,000 crores or more. These are plans that involve investing in the equity or the stock of such big companies. The investment bears one of the highest returns in the short-term plans sector. If wisely invested, you can earn between 8% to 13% yearly returns.

Benefits of investing in the Large-Cap Mutual Funds:

• The period is usually between 3 to 5 years.
• Returns are high – almost between 8 to 13 percent.
• The liquidity is high.
• Short-term Capital Gain Tax or STCG is charged on the fund when it is for three years or less.
• Large-term Capital Gain Tax is charged on the fund when the plan is above three years.
• Most of the large-cap companies have a sound financial position, therefore, the investment is mostly safe and there are good chances of generating decent revenues at the end of the term. The effect of market fluctuations on such an investment is not that impactful.

1. Debt Funds

These funds are a variant of mutual funds and are considered to be one of the lowest risk factors in the MF sector. So, expect decent returns in a very short period. Plus, the risks are quite low as the money is usually invested in the money market and debt.

There are three types of Debt Mutual Funds:

• Liquid Funds that mature within 91 days.
• Low duration funds – Macaulay duration that ranges from 6 months to 12 months
• Ultra-short duration funds – Macaulay duration that ranges from 3 to 6 months.

Benefits:

• This is where you can earn the highest returns in the short-term investment domain – the return is almost 10.5%.
• High on liquidity.
• Lower risks
• Regular returns.
• Capital Gain Tax gets charged on the debt instrument. STCG on gains for funds on a period less than 3 years and Long-term Capital Gain Tax is charged on gains on funds that have a period of more than 3 years.

1. Recurring Deposits

In this case, the investor to make investments on a monthly basis – there are some great benefits of recurring deposits –

• These are low-risk investments.
• The tenure can be as low as 6 months and as high as 10 years,
• The lock-in period is one month. And closure within the lock-in period means that the investor does not get any interest.
• The rate of interest is between 5% and 7% which gives decent earnings. The rate keeps changing. The current interest rate is about 6.5%.
• TDS is done when the interest earned goes beyond INR 10,000.

1. NSC or National Savings Certificates

This investment can be bought from the post office and is a government-backed scheme. Therefore, the risk is quite low. The term, however, is fixed to 5 years. The interest rate keeps changing, the decision to this effect is taken by the Finance Ministry. The interest rate announced for April till June 2020 was 6.8%.

Benefits

• Investors can claim tax benefits
• The interest is taxable though.
• Low risk
• Decent income.
• Government-backed

1. Fixed deposits in Banks

The investor needs to deposit a lump sum amount in a fixed deposit account. The tenure is variable – the minimum is 7 days and the maximum is 10 years. So, if you have idle money lying, it is good to put the money in FD and then let the money earn interest.

Benefits

• FDs have a higher rate of interest than a savings account. The interest is between 3.5% t0 8.05%.
• Safe investment
• High liquidity
• The tax on the interest earned is high – can go up to 30%.

Conclusion

Short-term investments are good because of the limited risks and for the decent returns that one can earn. Before investing in a short-term plan, it is vital to understand the risks involved, the liquidity of the funds, and the tax efficiency.