Best Investment Plans for 3 Years

According to financial experts, it is never considered a wise decision to simply lock up your funds in an idle manner. This reduces the purchasing power of the money with time. Even if you are planning to accumulate funds to fulfil any particular target, it is best to invest it in any short-term three-year investment instrument for enjoying enhanced benefits. This will help in better multiplication of the fund resulting in beating the inflation actively.

A tri-year time frame is the most sought after limit, for measuring the long-term returns. Although the long-term funds are generally of the five-year frame, yet, the general trend of the public reveals a different story. It is easier to plan three-year investment strategies than longer ones. Whether it is for the education of your child, or your long-desired foreign trip or the renovation of your home, the three-year time frame fits the scenario better than the longer ones. 

Benefits of the Investment Plans

Making wise investments can help your overall wealth corpus better, thus providing you with a stronger financial footing. Some of the highlighting benefits of the investment plans are as follows:

  1. Enhanced understanding of your net financial worth and avenues to improve it further
  2. Effective management of the income with wise diversion towards productive sources
  3. Prioritization of the expenses for discarding of the liabilities and monitoring of the assets
  4. Evasion of the debts and efficient funding of the requirements
  5. Enhanced preparedness for unprecedented circumstances and emergencies
  6. Facilitated self-dependency on personal finances as your personal goals remain at par with your financial strategies

The financial experts opine that the ideal financial strategy must define not only the goals but also provide effective means to achieve them. It will even consider your risk appetite along with your personal circumstances. It will ideally segregate your financial necessities and aspirations into timed targets, thus, helping you to get a more coherent and clear picture of the situation.

Life insurance plans such as ULIPs, Money-back plans, Savings, also offer investment opportunities. However, such plans are meant for long-term investment options. So, let us look at some of the investment options for a tenure of 3 years.

Top 5 Investment Plans for a Tenure of 3 years

Type of investment PlanInvestment HorizonRisk Profile
Fixed Deposits by Banks or Post Offices7 days to 3 yearsLow as guaranteed returns are provided 
Recurring Deposits1 month to 36 monthsLow as guaranteed returns are provided
Debt Mutual FundsNo specific tenure. You can redeem funds whenever needed Low as the fund invests in debt securities 
Large Cap Equity FundsNo specific tenure. You can redeem funds whenever needed High since the fund invests in stocks of large cap companies
Equity Linked Saving SchemeLock-in period of 3 years after which the funds can be redeemedHigh since the fund invests primarily in equity-oriented securities 

Fixed Deposit by Banks and Fixed Deposits

Fixed deposit is considered to be one of the most popular and safest investment options for three years. It has traditionally been one of the most popular investment opportunities in India.

There are several advantages of fixed deposit investments such as: 

  1. You can accumulate higher returns through fixed deposit investments from credible financial institutions
  2. Easy renewal process with the advantage of compounding, thus ensuring more returns
  3. As per the recent DICGC regulations, every depositor in any bank will be insured up to INR 1 lakh for both the interest as well as the principal on the deposits held by him/her in that particular banking institution

However, there are certain drawbacks as well. You might worry about the gradual depreciation of your principal as fixed deposits remain unaffected by the constant market fluctuations. The fixed deposit investments allow you to invest a fixed sum for a pre-fixed tenure accumulating a certain percentage of interest. The interest rates of FDs vary from bank to bank, however, all banks offer a slightly elevated rate of interest for the senior citizens. The tenure ranges from 7 days to 10 years. You can withdraw the amount before maturity, but it will be penalized.

RiskMinimal 
Return GuaranteeGuaranteed
CAGR6-8% as declared by the banks occasionally
Issued byBanks, post office and other financial institutions
Tax ImplicationsTDS @ 10% would be deducted from accumulated interest if the total interest income is above INR 10000
Investment ValueUnlimited
LiquidityCan be premature at any point, but at a cost of 1% of interest applicable for the premature tenure

Recurring Deposit

This is a special type of term deposit that is offered by the banks to help people with regular income strategies for depositing a certain fixed amount on a monthly basis into the recurring deposit account and earn interest against it as per the current applicable rates. The tenure ranges from 6months to 10 years. It is a great investment tool for proper channelization of the monthly savings for both short as well as long term wealth corpus creation. You can invest a small but fixed share of your income for investment till the completion of the tenure. 

RiskVery low
Return GuaranteeGuaranteed 
CAGR6-8% as declared by the banks occasionally
Issued byBanks and other financial institutions
Tax ImplicationsTDS @10% would be deducted from interest for interest earned above INR 10000 per annum
Investment ValueUnlimited
LiquidityCan be premature at any time but a cost of 1% of interest applicable for the premature tenure

Debt Mutual Funds

Debt funds primarily invest in securities generating fixed income like treasury bills, commercial papers, corporate bonds, government securities along with several other money market instruments. The debt fund managers observe the credit ratings of the individual companies for selecting high-quality debt instruments, thus ensuring better returns and better stability. The fund manager is also eligible to choose the investment plan for long-term or short-term depending on whether the rate of interest is rising or falling.

RiskModerate
Return GuaranteeMarket-linked
CAGR8-12%
Issued byAsset Management companies
Tax ImplicationsLTCG of 20% with indexation is applicable if redeemed after 3 years else STCG is taxed as per slab
Investment ValueUnlimited
LiquidityAnytime

Large Cap Equity Funds

These types of equity funds chiefly invest in the top 100 companies in the country. These companies maintain some of the largest and the most popular brands of India and have become household names. These companies generate sustainable profits in the long run.

RiskLow to moderate
ReturnsGuaranteed
CAGR12%- >20%
Investment LimitUnlimited
Tax ImplicationsSTCG is taxed @ 15% for a holding period of up to 1 year
Issued byCompanies
80CN.A.
LiquidityEasy

Equity Linked Savings Schemes (ELSS)

These are tax-free funds that invest above 60% of the total investment towards equities. It offers a lock-in period of three years. This allows the growth of the fund as no redemptions are permissible. ELSS gets converted into open-ended funds after three years have elapsed. This signifies that you are then free to redeem the fund or sell it for your personal use. It is better that you take a call based on your investment horizon and financial target and the returns that you are receiving from this particular mode of investment.

RiskHigh
Return GuaranteeMarket linked
CAGR12-15%
Issued byAsset Management Companies
Tax ImplicationsTax benefits under Section 80C up to INR 1.5 lakhs per year. Redemption proceeds are taxable at 10%, without indexation after INR 1 lakh of capital gain
LiquidityAnytime after the initial lock-in of 3 years

Tax Implications on Investments in India

As an investor, if you are planning your investment portfolio, then the issue of tax implications must be considered. If your deposits applicable for TDS and the interest income from fixed deposits exceed the mark of INR 40,000 in a single financial year or case of the senior citizen, it is INR 50,000. The profits earned through mutual funds are also similarly governed by differing sets of tax implications. 

The general trend reveals that all sorts of debt mutual funds attract STCG as well as LTCG. All these taxation trends affect the overall aspect of your investment. You must carefully consider all the relevant aspects well before settling for any investment option(s).

This is a basic guide of the details regarding the effective investment options of the three-year time frame. When viewed from the expert perspective, it is never advisable to let the principal value decline with time. Therefore, based on these guidelines, you can choose to park your funds for any effective short-term funds and enjoy satisfactory returns which will make it easier for you to fulfil your financial targets. 

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