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Best Investment plans for 5 years

Nowadays, the market is flooded with investment plans and to get the suitable one out of all is a daunting task. Moreover, there are multiple options that are framed on a tenure basis. People usually don't prefer long-term investment plans and thus search for short-term investment products that can offer a decent return within a short span of time. Basically, a short-term investment refers to the investment that a person makes for a short tenure that is for 6 months to 5 years. But the returns are comparatively low with 6 months, 1 year and 3 years plan so in such cases people prefer to go for a 5-year plan.

The presence of multiple options for short-term investments makes it difficult to choose. Here you can find different types of investment plans for 5 years so that you can choose the desired one as per your requirements.

Types of Investment Plans for 5 years

Before investing in any sort of short term investment, it is important for you to have a thorough knowledge of all the available Investment Plan for 5 years. Not only will it help you to choose wisely but also will assist you in understanding your investments.

Below mentioned are the best investment plan for 5 years. Take a look:

  1. Savings Account

    It is one of the best and safest idea to secure your money and earn from the same as well. Most people save money in their bank accounts as they can withdraw it anytime later. The main aim in such cases is liquidity not earning. In such cases, you can expect around 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, it is very important for you to understand that as per IT section 80TTA, a person or HUF can claim for 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. There will be no TDS on such earned interest and Section 80TTA deduction is apart from the deduction of what you get from the Sec.80C limit of Rs.1, 50,000.

  2. Liquid funds

    There are basically a few forms of mutual funds that people usually invest in short-term government securities and certificates of deposits. Such investments are the secure way of investing. They allow you to enter and exit anytime whenever you want. Such funds do not carry any exit load. Don't try to put your entire emergency funds into such funds. That's because many time 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 offers peace of mind to you as such funds invest in short maturity (4-91 days) securities. Usually, the underlying securities have a high quality of rating like AAA and hence default risk is fully NIL.

    When it comes to taxation of liquid funds then the process is the same as other debts fund taxation. Hence, in the case where your holding period is less than 3 years, then it is taxed as per your tax slab. However, if you hold it for more than 3 years, then it will be taxed at 20% (+cess) with indexation benefit.

  3. Fixed Maturity Plans (FMPs)

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

  4. Arbitrage Funds

    They 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 efficient. It can offer around 8% post-tax return.

  5. Bank FDs or Postal Term Deposits

    Well everyone must be aware of this investment. If you have an internet banking facility then you can book the same online s 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 FDs are taxable as per your tax slab (whether they are normal FDs or tax-saving FDs). You can deposit anywhere from 7 days to 10 Yrs.

    When it comes to Post office term deposits, well ins such cases the service of the same may lag behind. But it is the secure and safest way as well. Don't go for corporate FDs as they are not so good for the long run.

  6. Recurring Deposits (Rds)

    It is one of the secure and safest ways of investment. It is great for such people who are not able to invest a lump sum and looking for monthly investment. You can go for Bank RDs or Postal RD. Ideally, the bank offers RD of minimum tenure with 6 months to a maximum of 10 Yrs. And the Interest received on RD is taxable as per your tax slab.

  7. 5-Yrs National Savings Certificate (NSC)

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

  8. Monthly Income Schemes (MIPs)

    If you are looking for 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 rest in debt instruments (usually of higher duration). Hence, they combinedly make it a bit risky than the other debt funds.

Why Go For Investment Plans for 5 years

With the help of an 5 year investment plan, an individual can play safe with their accumulated corpus. Let's take a look at some of the advantages of investing your money in any of the above-mentioned best investment plan for 5 years

  • Flexibility: This is one of the points where short time period funding takes all of the praise. It presents the investor with the choice to alternate the funding at positive small durations. The invested amount isn't always tied up, as in long-term funding, and the investor can then invest the returns to a few other options.
  • Diversification: Flexibility is likewise a subset of diversification. Usually, the investment amount in quick-term investment alternatives is very much less in comparison to long-term investment. This lets in the investor to make investments the leftover amount in a few other investment options. Short-term investment facilitates in building a different portfolio and no longer all the amount is directed to the simplest one alternative.
  • Risk: Diversification will now help the investor in hedging the risk. As the amount is scattered to many asset lessons, threat related to it also spreads. Much less return in one funding might be sustained by way of decent returns.

5 Year Investment Plans: FAQs

1. I want to invest my money. Should I go for long- term or short-term investments?

While making an investment, It is important to understand the working and role of both types of investments and make the best use of both the investment options. Have a judicious mix of investments, keeping in mind crucial factors such as taxation, risk, and investment horizon.

2. When is the right time to start investing in a 5 year investment plan?

Every person has their own set of financial objectives that they desire to attain over a period of time. Therefore, you can start investing as early as possible, and it is always important to understand what you want to achieve and then streamline your investment.

3. What Kinds of Risks Does an Investment Plan for 5 years involve?

There are nine different forms of risk:

  • Risk associated with the stock market
  • Risk of Liquidity
  • Risk of concentration Credit danger
  • Risk of reinvestment
  • Risk of Inflation
  • Longevity danger
  • Foreign investment risk

4. Is there any eligibility criteria to buy the Best Investment Plan for 5 years?

Any Indian citizen who is living in India over the age of 18 can invest in a variety of investment schemes of their choice.While making an investment in investment plans the important eligibility criteria that are required to be fulfilled are:

  • Address proof along with the attested photocopy.
  • Photo ID proof along with the attested photocopy.
  • Aadhar Card along with the attested photocopy.
  • Bank Passbook.
  • PAN Card

5. What is Partial Withdrawal?

Partially withdrawable investment plans are available in India. This implies that the policyholder can withdraw a portion of the capital throughout the plan's term.

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June 9, 2022

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Last updated on February. 2022

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