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Best Investment Plans for 1 Year
There are many cases when investors want to invest for just one year. This often occurs when a financial goal is close, but the exact timing is uncertain (such as a marriage within the family). For such situations, it is crucial to ensure that funds are readily available whenever the need arises.
If you want to invest for a year, explore some of these best investment plans:
| Sr No. | Investment Plan for 1 Year | Ideal For |
|---|---|---|
| 1 | Fixed Deposits | Offer 6.5% returns |
| 2 | Fixed Maturity Plans | Provides constant earning |
| 3 | Arbitrage Mutual Fund | Offers 8% interest |
| 4 | Post Office Deposits | Investors can invest for a tenure of 1, 2, 3, and 5 years |
| 5 | Recurring Deposits | Suitable for those who invest monthly |
| 6 | Debt Funds | Suitable for those who are looking for everyday profit |
When you have an investment horizon of 12 months or less, here are some best investment plans to choose from.
Investment Plan Companies
Look after your investment needs with the below-mentioned IRDAI-approved Investment Plan companies.
1. Fixed Deposit
A bank Fixed Deposit (FD) is a secure option for investing for a year. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) regulations, each depositor in a financial institution is insured up to a maximum of Rs. 1 Lakh for both principal and interest amount. Most banks allow investing in an FD online.
Tenure
One can invest for 6, 9, or 12 months, or even longer, as different banks have different deposit periods.
Returns
As per the need, one may opt for monthly, quarterly, half-yearly, yearly, or cumulative interest options. The rate of interest that banks provide is highly aligned with the Reserve Bank of India (RBI) repo rate and the bank’s own cost of funds. Presently, it’s around 6.5 percent per annum for most tenures of twelve months and above. Senior citizens get an additional 0.5 percent on their deposits.
Liquidity
Such deposits can also be renewed on maturity, and thus funds can be reinvested if the need is not immediate. As per the need, one may choose monthly, quarterly, half-yearly, yearly, or cumulative interest.
Taxation
The interest earned is added to one’s income and is taxed as per one’s income slab.
2. Fixed Maturity Plans
A Fixed Maturity Plan (FMP) is a close-ended debt mutual fund. Its portfolio includes diverse fixed-income instruments with matching maturities. Based on the tenure of the FMP, a fund manager invests in instruments in such a way that all of them mature around the same time.
Tenure
FMPs have a maturity period that can vary from one month to five years.
Returns
FMPs are predominantly debt-oriented, and their objective is to provide consistent returns over a fixed maturity period, thereby shielding investors from market fluctuations. Because the securities are held until maturity, FMPs are not affected by interest rate volatility. The returns, however, are neither fixed nor guaranteed in FMPs.
Liquidity
Even though FMPs are listed on stock exchanges, liquidity is low. Invest in them only if you are sure to lock in funds for that period.
Taxation
The taxation is similar to debt funds. Gains made under 36 months of holding them are to be added to one’s income and taxed accordingly. However, gains made above 36 months are taxed at 20 percent post-indexation.
3. Arbitrage Mutual Fund
These funds primarily invest in arbitrage opportunities within the cash and derivative segments of the equity market and the arbitrage opportunities available within the derivative segment.
Tenure
They are open-ended funds, and one may hold them for at least 365 days to get the tax benefit available for equity funds.
Returns
An arbitrage fund leverages the price differential in the cash and derivatives market to generate returns. Returns from arbitrage funds, therefore, depend on arbitrage opportunities available between the spot market and the futures market. Although the returns are not guaranteed, the risk is low. Presently, returns are around 6 percent per annum. And just like FMPs, returns from arbitrage funds are neither fixed nor guaranteed.
Liquidity
The liquidity is high in them as they are open-ended schemes.
Taxation
Being equity funds, they qualify for similar tax benefits as available for equity-oriented products that have at least 65 percent exposure in equities.
4. Post Office Deposits
Tenure
You can invest in Post Office Time Deposits which have tenures of 1, 2, 3, and 5 years. For the short term, one may invest in a 1-year time deposit.
Returns
Once invested, the returns are fixed and guaranteed with sovereign guarantee for the entire period. For a short-term goal, you can invest in a 1-year time deposit where the interest is payable annually but calculated quarterly. Each quarter, the rates are reset by the government, which applies only to fresh investments made in that quarter of the year. Presently (April-June quarter), the rates are 6.6 percent to 7.4 percent for 1-5 year terms.
Liquidity
The interest is paid out annually. Premature withdrawal is not allowed before the expiry of six months. One may surrender the deposits after that; however, the amount of interest recovered in case of premature withdrawal of the deposit would be at a discounted rate of interest.
Taxation
The interest earned is added to one’s income and is taxed as per one’s income slab.
5. Recurring Deposits
In a Recurring Deposit (RD), one has to invest at a regular interval for a set period and receive a lump sum maturity payment. Most banks allow investing in an RD online.
Tenure
If one desires to save regularly for a short term, say, for twelve months, a Recurring Deposit (RD) in banks may come in handy. One may open an RD for a tenure as low as 6 months and then in multiples of 3 months, up to ten years.
Returns
The interest rates for Recurring Deposits can be the same as the rate applicable for an ordinary bank FD. Presently, it’s around 6.5 percent per annum for most tenures of one year and above. The interest amount will be applicable as on the date of making the first installment.
Liquidity
Normally, the RD account has a minimum lock-in period of one month. In the case of untimely closure within a month, no interest is paid to the depositor, and only the principal amount is returned. On premature withdrawal of the deposit, interest will only be calculated at the rate applicable for the period of the deposit.
Taxation
The interest earned is added to one’s income and is taxed as per one’s income slab. If the interest earned is more than Rs 10,000 a year (including interest on bank deposits) across all branches of the bank, TDS will be deducted.
6. Debt Funds
Debt funds are ideal for investors who need regular income but are risk-averse. Debt funds are less risky and, hence, are less volatile compared to equity funds. In terms of safety, they score higher than equity mutual funds. For instance, when the market falls, the Net Asset Value (NAV) of your fund falls sharply, while in the case of debt funds, the fall is not as sharp.
Returns
The returns, however, are neither guaranteed nor fixed. Presently, you can earn about 7 percent per annum. For maximum results, match your investment horizon with the maturities of underlying securities of these funds and then invest.
Liquidity
The liquidity is high in these funds, and units may be redeemed in a short time.
Taxation
Profits made under 36 months of holding them are to be added to one’s income and taxed accordingly. However, gains made above 36 months are taxed at 20 percent post-indexation.
Debt Fund Options for Less Than a Year
For those who need to invest in market-linked investments for less than a year, here are two debt fund options to choose from:
- Low Duration Fund: In the Low Duration Fund, the investment is made into Debt & money market instruments with maturity of the underlying securities between 6 months and 1 year.
- Money Market Fund: In a Money Market Fund, the investment is made into money market instruments with maturity of the underlying securities up to 1 year.
Documents Required to Purchase an Investment Plan for 1 Year
Below-mentioned are the required documents that you need to provide while buying an investment plan for 1 year.
- Income Proof
- For Salaried Individuals: Form 16, Last 3-month bank statements, Income tax return for the last 2 years
- For Self-Employed: Form 26 AS, Income tax return of the latest 2 years, profit and loss account, and CA (certified audited)
- Address Proof: Voter ID, Aadhaar Card, Passport
- Age Proof: PAN Card, Aadhaar Card, Passport, Municipal Birth Certificate, Voter ID
- Identity Proof: PAN Card, Aadhaar Card, Passport, Voter ID
What You Need to Do
Before making your investments, you should understand that the post-tax return is low as the interest or the profits get added to your income and taxed according to your income slab. If your investment horizon is anywhere up to 12 months, choose safe investment options where the risk of losing capital is not present. Prioritize safety over returns when the investment horizon is shorter.
