Best Investment Plans for 5 Years

It is seen that the general trend of the investors is that they seek significant returns within a short span of investment. But since too high safe returns are not possible within too short a span, therefore you have to plan your budget accordingly by maintaining the time factor. In this context, the five-year time frame seems to be quite a plausible and popular one. But, you must first match your personal risk profile with the investment avenues and the investment horizon. 

Investment Options for a Tenure of 5 Years

With so many investment options currently available in the market, it becomes a challenge for the investors, especially the new ones, to select the right ones that will serve the targeted purpose. This investment guide will shed some light in this respect. 

Life insurance plans with investment options like ULIPs plan, Money-back plans, Savings, also good options.. However, such plans are meant for long-term investment options. 

So, here we present the top 7 investment plans that are considered ideal as investment avenues securing inflation-adjusted returns.

Type of Investment PlanInvestment HorizonRisk Profile
Fixed deposits by Banks or Post Offices7 days to 5 yearsLow as guaranteed returns are provided 
Recurring Deposits1 month to 60 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 
National Saving Certificate5 years minimum Low as guaranteed returns are provided
Senior Citizen Saving Scheme5 years minimum Low as guaranteed returns are provided

Fixed Deposits by Banks and Post Offices

Fixed deposit is considered to be one of the most popular and safest investment options for three years. There are several advantages of fixed deposit investments. These are as follows:

  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.

Return GuaranteeGuaranteed
CAGR6-8% as declared by the banks occasionally
Issued byBank, 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 in Tax Savings FDs with a lock-in of 5 years qualify for 80C benefit under section 80C upto INR 1.5 lakhs a year
Investment ValueNo limit
LiquidityCan be prematurely withdrawn at any point, but for 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 every month 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, Post office and other financial institutions
Tax ImplicationsTDS @10% would be deducted from interest for interest earned above INR 10,000 per annum
Investment ValueNo Limit
LiquidityCan be prematurely withdrawn at any time but a cost of 1% of interest applicable for the premature tenure

Debt Mutual Fund

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.

Return GuaranteeMarket-linked
Issued byAsset Management companies
Tax ImplicationsLTCG(Investment of more than 36 months) of 20% with indexation is applicable if redeemed after 3 years else STCG is taxed as per slab
Investment ValueUnlimited

Large-cap Equity Fund

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
Investment LimitNo limit
Tax ImplicationsSTCG(Investment of 12 months or less) is taxed @ 15% for a holding period of up to 1 year
LTCG (investment of more than 1 months) is taxed at 10% for capital gain more than INR 1 lakh in 1 financial year
Investment ValueAsset Management Companies
LiquidityRedemption is available to open ended schemes at any time subject to taxation and exit load

Equity-linked Savings Scheme

These are tax-free funds that invest above 65% of the total investment towards equities to qualify for . 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.

Return GuaranteeMarket linked
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
Investment ValueNo Limit
LiquidityAnytime after the initial lock-in of 3 years

National Savings Certificate

This is a savings bond issued by the government of India. These are chiefly used for the small savings and income tax savings investment tools. This is a significant part of the postal savings scheme. This is a secured low-risk investment product. You can easily avail it from your nearest post office in your name, in the name of any minor or even a joint account.

Return GuaranteeGuaranteed
CAGR6.8% from 1st April, 2020
Issued byPost office
Tax ImplicationsInterest is taxable
Investment ValueMinimum is INR 100. No maximum limit, Available in denominations of Rs. 100, rs. 500, Rs. 1000, Rs. 5000 and R. 10000
LiquidityCannot be redeemed prematurely but can be pledged
80C Tax benefit upto INR 1.5 lakhs is available for investing in NSC

Senior Citizens Savings Scheme (SCSS)

This is considered to be the primary choice of most of the retirees. This is specially designed for the senior citizens as well as the early retirees. It can be easily availed by the eligible candidates from the bank or a post office.

The basic tenure of SCSS is five years. It can be further extended up to three more years on maturity. The optimum investment limit is INR 15 lakh and you can even handle multiple accounts, maintaining the limit. The rate of interest of this scheme is payable on a quarterly basis and is entirely taxable. This rate of interest is reviewed and revised at each quarterly interval.

But, once the investment is settled, then the rate of interest remains fixed throughout the tenure. In case of extension, the current prevailing rate of interest will be taken into account. The senior citizens are eligible to claim a tax deduction of up to INR 50,000 in a single financial year under Section 80 TTB on the interest earned through this particular scheme. 

The early retirees can avail this scheme if their age is above 55 but less than 60, provided they are eligible for early retirement under the VRS rules or applicable superannuation. Under such circumstances, the account needs to be opened within one month of the receipt of the retirement facilities and benefits. 

Return GuaranteeGuaranteed 
Issued byPost office
Tax ImplicationsTDS @10% is deductible from the interest
Investment ValueINR 1000 TO INR 15 lacs
LiquidityAllowed to premature after 1 year but before 2 years for 1 and ½% and after 2 years and 3 years at 1%
80C Tax BenefitYes, up to INR 1.5 lakh p.a.

Take Away: Investment Options for 5 years

Some of these instruments are financial market-linked while some others offer regular income. Both the market-linked as well as the fixed-income schemes towards wealth creation. All the market-linked investments possess the potential of high returns with the association of heavy risks. Depending on your risk appetite and investment horizon, select any of this above-discussed investment option (s) as your 5-year investment plan. You can incorporate one or more plans in your investment portfolio from the ones discussed here. But, you must carefully consider all the related factors including the tax implications before you finally settle for any one option. 

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