Introduction
Picture this – You started earning and set aside a percentage of your income to gift yourself the dream car finally. Two years go by, then five, and the amount falls short every time. Reason? Inflation-induced price rise. Setting aside the money every month accumulates money, but it doesn’t help grow it. Investing enables you to put your money to work and grow your wealth effectively.
The key to good investment planning is knowing your investment goals and aligning your portfolio accordingly. This involves categorizing investments by their time frames. For instance, more liquid investment options can be set aside for short-term goals, while medium-term plans (around five years) can include options balancing liquidity and compounding potential.
Long-term investment plans can be achieved with avenues that offer consistent growth and compounding benefits. In this article, we will examine the investment options to help you shortlist the best five-year investment plan in India.
What is a 5-year investment plan?
A 5-year investment plan is a strategic approach to saving and growing your funds over a set period. By focusing on a fixed five-year timeframe, you can adopt a disciplined savings approach and invest in low-risk growth instruments, ensuring financial growth and security.
You can deposit a fixed amount regularly, such as monthly or quarterly, or invest a lump sum for five years. This approach provides a structured pathway to achieving your financial goals through careful and consistent investment.
Types of 5 years investment plans in India
Post Office Time Deposit
Post Office Time Deposit (POTD) is a fixed deposit scheme offered by Indian postal services that provides guaranteed returns. You can invest a lump sum figure at a fixed rate in a 1, 2, 3, or 5-year investment plan. The interest rate differs for different investment tenures and changes every quarter depending on the yield of the government securities. For the first quarter of 2024, the interest rate for a 5-year investment plan is 7.5%.
Opting for the 5-year investment plan on POTD offers tax benefits under section 80C (under the old tax regime) for investments up to Rs.1.5 lakhs. You can invest in the 5-year investment plan with a minimum of Rs.1000, with no upper limit. Moreover, this scheme is designed to be inclusive, making it accessible nationwide to individuals of all ages.
Liquid funds
Several types of mutual funds invest in short-term government certificates of deposits and other securities. These investments are considered secure and allow flexibility to enter and exit without any exit load. You can expect post-tax returns ranging from 4% to 7%. Liquid funds are taxed similarly to other debt funds. So, if held for less than three years, the tax levied will be according to your income tax slab, and for more than three years, they are taxed at 20%.
Fixed Maturity Plans
Fixed maturity plans (FMPs) are a type of close-ended debt fund. They invest solely in debt instruments and have a 1-5-year duration. FMPs offer fixed returns based on current interest rates. They are ideal for those seeking a 5-year investment plan with low to moderate risk tolerance and looking for steady returns. These funds have a predetermined maturity period and are not influenced by market fluctuations. If you want a stable investment option with fixed returns and minimal risk, FMPs are a great choice.
ULIP
Unit-linked insurance Plans (ULIPs) offer various investment horizons, including 5-year plans that provide life coverage and investment returns. A 5-year ULIP divides your premium into insurance coverage and debt or equity fund investments. This policy is ideal for mid-term investment needs and offers flexibility to choose premiums and funds.
The premiums are eligible for deductions under Section 80C of the Income Tax Act, 1961, per the old tax regime. Additionally, proceeds from surrender, partial withdrawal, or maturity are tax-exempt under Section 10(10D), provided premiums in any year won’t exceed Rs.2,50,000.
National Savings Certificate
The National Savings Certificate (NSC) is a secure investment option issued by the Indian government. You can buy NSCs from Indian post offices for a fixed amount, and they earn interest over time at a rate of 7.7% annually (Q3 FY 2023-24). NSCs have a fixed maturity period, and their interest qualifies as tax deductions under Section 80C, making them an ideal choice for cautious investors to earn through this 5-year investment plan.
Bank Deposits
Bank FDs and RDs are traditional yet attractive options for medium to long-term investments. With recent interest rate hikes (average rate being 6-7%), these investments are becoming popular across all age groups, especially among senior citizens who receive additional interest. FDs and RDs offer flexible tenures ranging from 7 days to 10 years. In the case of 5-year tax-saving FDs, you get the benefit of deductions under section 80C up to Rs.1,50,000. However, the interest earned from FDs and RDs is taxable based on your applicable slab rates.
SCSS (Senior Citizen Savings Scheme)
With the SCSS, you can earn an interest rate of 8.2% p.a. (Q3 FY 2023-24). Opening an SCSS account is easy and can be done at your nearest designated bank or post office. You get the convenience of receiving interest payouts every quarter, ensuring a steady income stream. Plus, you can maximize your savings with tax benefits under Section 80C of the Income Tax Act, up to Rs.1.5 lakh per annum (under the old tax regime).
Equity Linked Savings Scheme
These are tax-saving mutual funds investing mainly in stocks (equity and equity-related securities). These can lower your income tax liability as you become eligible for a deduction of up to Rs.1.5 lakh for the financial year(under the old tax regime). Being diversified equity mutual funds, they offer potential wealth creation by investing in stocks with strong stock intrinsic value. Additionally, their three-year lock-in period is among the shortest for tax-saving instruments. There are no exit or entry charges for buying or selling the units.
Hybrid Mutual Funds
These funds invest in equity and debt funds, with the ratio varying from fund to fund. These funds are suitable for a 5-year investment plan, providing both regular income and the potential for higher returns. They balance growth and stability, making them ideal for investors with moderate risk tolerance. You can invest in hybrid funds either through SIP investment or lumpsum investing.
Conclusion
Investing for the medium term can be tricky. You must balance risk and return before choosing a 5-year investment plan in India. In the complex world of finance, selecting the best 5-year investment plan in India requires careful consideration of your financial goals, risk tolerance, and time horizon.
Remember that options like fixed deposits, mutual funds, or government-backed schemes serve unique purposes. So, align your investment choices with your objectives and financial profile carefully. Consulting SEBI-registered experts for investment advice can help you find India’s best 5-year plan investment.
*Disclaimer Note: The securities quoted, if any, are for illustration only and are not recommendatory. This article is for education purposes only and shall not be considered as recommendation or investment advice by Research & Ranking. We will not be liable for any losses that may occur. Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, membership of BASL, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
FAQs
Which investment is best for 5 years?
For medium-term investments of around five years, it is suggested that you look for investments that balance stability and growth and carry low to moderate risk. Some options include bank deposits (fixed and recurring deposits), mutual funds (ELSS and hybrid funds), arbitrage funds, ULIP, National Savings Certificate, and Post Office Time Deposit.
What is a good 5-year return on investment?
A “good” ROI varies with the type of investment and personal circumstances. Financial advisors can help you determine the ideal ROI for 5-year investment plans by considering risk tolerance, age, and income. Generally, a positive ROI is good, with 5-7% being reasonable and over 10% considered strong. Note that ROI doesn’t consider the time value of money, risk, or cash flows, which can impact profitability. Thus, it may not provide a complete picture of an investment’s performance.
Can I double my money in 5 years?
Investments don’t specify guaranteed timelines to double your invested amount. High-risk options can promise quicker growth but also carry a greater risk of losses. On the other hand, safer investments may require more time to double your money.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
