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Best Investment Plan for 5 Years

Investment Plans are important financial means that help create sustainable wealth for the future. Several investment plans allow us to invest our savings into various money-market products in a disciplined and periodic manner to accomplish our financial goals. 

Investment planning plays a significant role in financial planning. Investing for the tenure of 5 years is generally involved in the short-term low-risk investment options. By investing in the investment plans for 5 years the chance to gain higher returns is more as compared to 3 years or 1 year investment. Some of the best investment plans for 5 years discuss below.

5 year investment plan

Best Investment Plans for 5 Year with High Returns

For getting higher returns on their savings, there’s a list of the best investment options for you to make your wealth grows.

  1. Savings Account
  2. Liquid funds
  3. Fixed Maturity Plans (FMPs)
  4. Arbitrage Funds
  5. Bank Fixed Deposits or Postal Term Deposits
  6. 5 Yrs National Savings Certificate (NSC)
  7. Monthly Income Schemes (MIPs)

Let’s discuss these plans one by one.

Savings Account

Savings Account is one of the best and safest plans to secure your money and earn from the same as well. Most people save money in their bank accounts so that they can withdraw it anytime. The main purpose in such cases is liquidity not earning. In such cases, you can expect around a 4 % to 7% return from your savings account. There are a few banks that offer around 6 % to 7 % such as Kotak and Yes Bank.

However, you need to understand that as per IT section 80TTA a person or HUF can claim a deduction of Rs 10000 on the interest that you earned from such a savings account. Any amount that is more than Rs. 10,000 interest income is considered as “Income from Other Sources” and taxed according to your tax slab. 

Benefits of Saving Account

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The benefits of investing in a Saving Account are listed as under:

  • Provides you liquidity
  • Provides safety
  • Earn interest up to 7%
  • International debit cards
  • Online transaction facility
  • Track your transactions online
  • Helps in getting a loan

Liquid Funds

There are primarily a few forms of mutual funds that people normally invest in short-term government securities and certificates of deposits. Such investments are a secure way of investing.  Such funds do not carry any exit load. Don’t try to put your whole emergency funds into such funds. That’s because many times redemption takes almost 2 days. Moreover, ATM cards also carry the withdrawal limit. 

You can expect around 4% to 7% post-tax return. However, it gives funds to invest in short maturity (4-91 days) securities. Usually, the underlying securities have a high-quality rating like AAA, and hence default NSK is fully NIL When it comes to taxation of liquid funds then the process is the same as other debt fund taxation. In this case, when your holding period is less than 3 years, then it is taxed as per your tax slab. But, if you hold it for more than 3 years, then it will be taxed at 20% with indexation benefit.

Benefits of Liquid funds

  • The benefits of investing in Liquid funds are listed as under:
  • Liquid funds are professionally managed funds
  • Investment portfolio liquidity
  • Liquid funds may diversify your mutual fund portfolio

Fixed Maturity Plans (FMPs)

Currently, these funds come out with a lock-in period of a minimum of 3 years. These are popular as debt funds and you can invest in such a firm of funds only you know about when you need money. You can assume it as your FDs, but they are more tax-efficient, unlike FDs. These funds are out of interest rate risk. Because funds usually hold securities that mature either less than or equal to the maturity of the fund.

Benefits of Fixed Maturity Plans (FMPs)

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The benefits of investing in Fixed Maturity Plans (FMPs) are listed as under:

  • Fixed Tenure
  • Investment Strategy
  • Closed-ended Funds
  • Capital Protection
  • Low-Interest Rate Sensitivity
  • Low Credit and Liquidity Risk
  • Low Cost
  • Tax Benefits
  • Portfolio Balancing
  • Double Indexation Benefit

Arbitrage Funds

Arbitrage Funds are popular by the name of equity mutual funds as well. If the holding period in such investment is more than 1 year so they are more tax effective. It can offer around 8% post-tax return.

Benefits of Arbitrage Funds

The benefits of investing in Arbitrage Funds are listed as under:

  • Low Risk
  • Suitable for Unstable Markets
  • Taxed as Equity Funds

Bank Fixed Deposits or Postal Term Deposits

Well everyone must be aware of this investment. If you have an internet banking facility then you can maintain the same online well. This will be easy for you to handle, moreover, If you want to redeem the same then you will get immediate cash in your account. Returns from such FDs are taxable as per your tax slab. You can deposit anywhere from 7 days to 10 years. When it comes to Post office term deposits, well ins such cases the device of the same may lag. But it is the secure and safest way as well. Do not invest in corporate FDs as they are not so good for the long run.

Benefits of Bank Fixed Deposits or Postal Term Deposits

The benefits of investing in Bank Fixed Deposits or Postal Term Deposits are listed as under:

  • Returns guaranteed
  • Considerable interest rate
  • No volatility

5-Yrs National Savings Certificate (NSC)

NSC allows you to invest your hard-earned money in postal NSC for S years, but only if you ensure that the goal is exactly 5 years from today. You can claim deduction under Sec.80C. However, the interest in NSC will be taxable.

Benefits of 5-Yrs National Savings Certificate (NSC)

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The benefits of investing in 5 Yrs National Savings Certificate (NSC) are listed as under:

  • Attractive interest Rates
  • Minimum/maximum limit of investments
  • Loan against NSCs
  • NSC Denominations

Monthly Income Schemes (MIPs)

If you are looking for a regular fixed monthly income, then you can go for Postal MIP. Usually, these funds invest around 10% to 20% of a portfolio in equity and the rest in debt instruments (usually of higher duration). So, they combined make it a little risky than the other debt funds.

Benefits of Monthly Income Schemes (MIPs)

  • The benefits of investing in Monthly Income Schemes (MIPs) are listed as under:
  • Liquidity
  • Better returns
  • Guaranteed income
  • Lower-risk

Benefits of Investment Plan for 5 year 

The benefits of investing in 5 Year Investment Plans are listed as under:

  • Flexibility 
  • Save Taxes
  • Wealth Creation
  • Financial Protection
  • Death Risk Coverage
  • Retirement Savings
  • Loan Facilitator

Conclusion

To make smart investments, then we must have in-depth knowledge of the different investment options available in the market. For most investors, the choice of a suitable scheme depends upon financial objective, time period, risk level, etc. And, do not become confused between savings and investments. These are two broad terms the former leads to a passive way of saving your money whereas the latter also focuses on creating & growing wealth.

Frequently Asked Question

Q1. What do mean by investment?
Ans. Investment refers to the amount of money contributed towards investment and savings schemes, as per an investment strategy, aiming at capital growth through diversification of portfolio.

Q2. What are the benefits of investing in short-term investment?
Ans. Some of the benefits of short term investment are:

  • The short duration of time
  • High flexibility
  • High liquidity
  • Transparency

Q3. How do I invest money wisely?
Ans. You need to keep in mind certain parameters like your investment objective, risk appetite, whether you’re looking for meeting long-term or short-term goals, etc. to decide on the type of investment plan you should invest in.

Q4. What is a good rate of return on investments?
Ans. When the investment plan that you have invested in generates high capital growth, it is referred to as a good rate of return on your investment.

Q5. What are some high-risk investments?
Ans. Some instances of high-risk investments are equities, equity mutual funds, and hedge funds.

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