Most people think tax saving is only for long-term investments like PPF or NPS. But what if you’re working toward a goal that’s just a year or two away, and still want to make the most of your tax benefits?
The good news: there are select tax saving schemes that can work even if you’re a short-term investor. With the right strategy, you can grow your money and reduce your tax burden, all within a relatively short investment horizon.
In this guide, we’ll walk you through the best short term investment plans that also offer tax advantages, and how to choose the one that fits your needs.
Can Short-Term Investors Save on Taxes?
Yes, but with some limitations.
Most of the popular tax saving schemes in India, like ELSS, PPF, and NPS, come with a lock-in period. That means while the investment may serve your long-term goals, it doesn’t align with short-term liquidity needs.
However, there are still a few ways to balance short term wealth creation with tax optimisation, especially if you’re strategic about when and how you invest.
Top Tax-Saving Options Suitable for Short Term Investors
1. Equity Linked Savings Scheme (ELSS)
Lock-in: 3 years
Tax Benefit: Up to ₹1.5 lakh under Section 80C
Returns: Market-linked (historically 10%–15%)
Risk: Moderate to High
Why it works:
While 3 years may not seem “short” by definition, ELSS has the shortest lock-in among all 80C instruments. For short-term investors who can afford a slightly longer window, it offers:
- Tax deduction
- Higher return potential than FDs or RDs
- SIP-friendly investing
Pro Tip: If you’re open to a 3-year commitment, ELSS is the most efficient tax-saving option for short-term gains.
2. 5-Year Tax-Saving Fixed Deposits
Lock-in: 5 years
Tax Benefit: Up to ₹1.5 lakh under Section 80C
Returns: ~6%–7%
Risk: Very Low
Why it works:
Some banks offer premature withdrawal on special conditions, but in most cases, you’ll need to hold for 5 years to get tax benefits.
However, this can still be part of your laddered investment plan, where you stagger maturity dates for short- and medium-term liquidity.
3. ULIP Plans (with Balanced Allocation)
Lock-in: 5 years
Tax Benefit: Premiums qualify under Section 80C
Returns: 5%–12% (based on fund choice and performance)
Risk: Low to Moderate (depends on fund allocation)
Why it works:
Though technically a longer-term product, ULIP plans offer more flexibility than you might think. After the 5-year lock-in, you can:
- Make partial withdrawals
- Switch between equity and debt funds
- Use the plan for staggered short-term goals after year 5
It’s an effective tool for short-term planners who are also looking to build a tax-saving fallback fund.
4. National Savings Certificate (NSC)
Lock-in: 5 years
Tax Benefit: Section 80C
Returns: ~7.7% (as of 2025)
Risk: Very Low
Why it works:
While not liquid, the returns are guaranteed and taxable, but the reinvested interest also qualifies for deduction, effectively compounding your savings and tax benefit.
This is best suited for short-term investors who:
- Don’t need immediate liquidity
- Want low-risk, capital-protected tax-saving options
5. Health Insurance Premium (Section 80D)
Tax Benefit Only (No Returns):
- Up to ₹25,000 deduction for self + family (₹50,000 if you’re a senior citizen)
Why it works:
While it’s not an “investment plan” in the traditional sense, buying health insurance is a smart financial move that also helps you save tax, especially if you’re not ready to lock in funds for 3–5 years.
It allows you to:
- Reduce taxable income
- Avoid dipping into savings in medical emergencies
- Fulfil protection and tax-saving in one go
6. Short-Term Capital Gains Planning
If you’re investing in mutual funds, stocks, or other capital assets for under a year, remember:
- STCG (Short-Term Capital Gains) from equity are taxed at 15%
- Debt fund STCG is taxed as per your slab
So while there are limited tax-saving schemes for very short-term investments (under 1 year), tax planning can help reduce your overall liability:
- Offset gains against capital losses
- Use dividend payout strategies cautiously
- Don’t churn investments unnecessarily
What to Avoid as a Short-Term Tax Saver
- PPF: 15-year lock-in makes it unsuitable for short-term goals
- NPS: Great for retirement, but not for short-term liquidity
- Sukanya Samriddhi Yojana: Long lock-in tied to the girl child’s age
- EPF: Useful if you’re salaried, but not accessible for short-term withdrawals without penalties
How to Build a Tax-Saving Strategy as a Short-Term Investor
- Use ELSS for short- to medium-term wealth building (3-year horizon)
- Layer with ULIP or NSC for longer short-term goals (5-year horizon)
- Add health insurance for added tax benefit without investment lock-in
- Consider a small tax-saving FD if your goal is stability and safety
- Avoid parking all funds in one instrument, create a laddered plan
Final Thoughts
If you’re looking for tax saving schemes as a short term investor, the options are fewer, but they do exist. You just have to balance your need for liquidity with your desire to save on taxes.
By choosing the right mix of ELSS, ULIPs, tax-saving FDs, and insurance, you can create a short-term plan that doesn’t just grow your money, but also gives you tax relief along the way.
Start small. Start smart. And most importantly, start now, because tax planning doesn’t need to wait for long-term goals to begin.