Best Investment Plan for 5 Years with High Returns & Tax Benefits
You probably were asked this question at an interview: “Where do you see yourself in 5 years?”
The same thing applies before beginning your investment journey. Before investing in plans for 5 years, you should analyse your financial goals, liquidity, and taxation and review your monthly budget accordingly. Investments without an objective are like travellers without a destination. Thus, choose from the best investment plans for 5 years to channel your savings for future goals.
However, there are investment plans with even shorter tenures than 5 years. But, they may not yield significant returns. Compound investing in longer tenures can help you accumulate a corpus sufficient enough to meet your life goals. Furthermore, being long-term, they protect you from market volatility.
Now, choosing the best investment plan for 5 years from the multiple schemes in the market can be challenging. This article will help you review the top 5-year investment plans with high returns. The list below mentions the best plans that cover SIPs, FDs, mutual funds, savings plans and more.
13 Best Investment Plans for 5 Years in India (2023)
|Scheme||Interest Rate (%)||Minimum Investment||Maximum Investment||Tenure|
|ULIPs||10-15 %||₹2000||None||5-20 years|
|Recurring Deposits||6.5-8.5 %||₹100||None||6 months – 10 years|
|Corporate Bonds||8-9 %||₹1000||None||1-30 years|
|SIP||11-13 %||₹500||None||1 year – 10 years|
|Monthly Income Schemes||6-8 %||₹500||None||5 years|
|Fixed Deposits||6-7.5 %||₹1000||None||7 days-10 years|
|Liquid Funds||6.5-7.5 %||₹500||None||Typically 91 days|
|Post Office Time Deposit||6.7-7.5 %||₹1000||None||1-5 years|
|Large Cap Mutual Funds||10-12 %||₹500||None||1 year – Indefinite|
|Fixed Maturity Plans||7-8%||₹5000||None||Few Months -5 years|
|National Savings Certificate||6.8-7 %||₹100||None||5 years|
|Senior Citizen Savings Scheme||7.5-8 %||₹1000||None||5 years|
A Unit Linked Insurance Plan (ULIP) offers dual benefits of insurance coverage and stock market returns to help fulfil your goals. Thus, the premium payment is divided between the two parts. You can switch funds or partially withdraw in times of need. However, they do have a lock-in period of 5 years. These long-term funds also enjoy a tax-exempt status on capital investment, interest, and maturity value, which makes them come under the best investment plans for 5 years in India.
A recurring deposit or RD is an investment tool offered by banks and NBFCs, wherein you make regular deposits as per your choice and earn returns. An RD helps create the discipline of savings. Furthermore, they offer higher interest than savings accounts.
To raise capital, companies take loans from investors instead of taking bank loans. These are known as corporate bonds. The investors receive interest payments periodically and the principal amount on maturity. Not only corporate bonds ensure a predictable return (generally higher than FDs and Saving Account), but they are also a safer instrument than stocks.
SIP (Systematic Investment Plan)
SIPs enable investors to make investments instead of lump sums. The return rate for SIPs typically ranges from 11% to 13%. You can initiate a SIP with an investment of ₹500. There is no specific maximum limit. The usual duration for a SIP varies from 1 to 10 years. Furthermore, investments made in SIPs of Equity Linked Saving Schemes (ELSS) provide tax benefits under Section 80C of the Income Tax Act, allowing deductions of up to ₹1.5 lakhs.
Monthly Income Schemes
If you wish to receive some funds periodically, like post-retirement, you can also invest in a monthly investment plan for 5 years. Under these schemes, a small portion, like 20–25%, is invested in equity securities to generate cash flows, and the balance is in stable debt instruments.
If you are a risk-averse investor, the best investment for 5 years is fixed deposits. It is one of the safest financial instruments and the most popular alternative to keeping funds idle in a savings account. Investing in 5-year FDs offers the benefits of tax exemption under Section 80C of the Income Tax Act.
You can also create a 5-year saving plan with short-term securities, like liquid funds that include government securities or treasury bills. As the name suggests, their primary advantage is that they allow investors to exit any time they want without attracting penalties. However, as their redemption takes around two days, you should refrain from investing your entire emergency funds in such assets.
Post Office Time Deposit
This fixed deposit scheme, offered by the Indian Post Office, offers interest rates that range from 6.7% to 7.5%. The minimum investment amount is ₹1000 with no limit imposed. The tenure for this deposit spans between 1 and 5 years. Investments in the 5-year Post Office Time Deposits are eligible for tax benefits under Section 80C of the Income Tax Act.
Large Cap Mutual Funds
These funds primarily invest in companies with market capitalization. They offer returns ranging from 10% to 12%. With a minimum investment requirement of ₹500, there is no limit on the investment amount specified. While these funds can be held for as short as one year, they are open-ended. It can theoretically be held indefinitely. Depending on the type of fund, such as ELSS, tax advantages covered by Section 80C might be applicable.
Fixed Maturity Plans
FMPs are a kind of debt fund that offer returns ranging from 7 8%. To invest in FMPs a minimum of ₹5000 is. There is no limit. Their duration can vary from a months to 5 years. Since FMPs are debt funds they can provide indexation benefits if held for than 3 years which can be advantageous for investors in tax brackets.
National Savings Certificate
NSC is a savings bond that promotes saving while contributing to Indias development. It provides an interest rate between 6.8 7%. The investment can start with little as ₹100. There is no upper limit. The tenure of the NSC is fixed at 5 years. Investments made in NSC qualify for tax deductions under Section 80C of the Income Tax Act.
Senior Citizen Savings Scheme
This scheme exclusively caters to citizens. Offers a higher return rate between 7.5 and 8% to support their post-retirement phase. The minimum investment amount is ₹1000 with no specified limit. The tenure, for this scheme is fixed at 5 years. It can be extended. Investments made under the Senior Citizen Savings Scheme (SCSS) are eligible for tax deductions as per Section 80C of the Income Tax Act.
A savings account is a deposit held at a bank or other financial institution. It offers interest rates ranging between 3 and 4%. There is no minimum or maximum investment requirement. The account remains open indefinitely. While the interest earned up to an amount is exempt from taxes any interest earned beyond that threshold is subject, to taxation.
Benefits of 5 year Investment Plans
Here are some advantages of investing in a 5-year investment plan in India:
Warren Buffett says that to be rich, you need to be making money even when you are sleeping. Investing in 5-year saving plans is an important step to create that income. They can help fulfil goals like building a house, planning for your child’s college funds, or taking a dream vacation to Europe!
Flexibility means the option to invest your money at specified intervals like monthly or quarterly. Furthermore, the amount is not necessarily tied up and you have the freedom to invest the returns in other alternatives.
Hedge Your Risk
In a five-year investment plan, you generally invest small amounts across multiple options. This approach diversifies your risk. So, if one asset leads to less returns, it can be sustained by other investments.
Monthly income schemes or liquid funds give the benefits of liquidity to investors in times of need. Investors don’t have to worry about lock-in periods and penalties.
Who Should Invest in a 5 year Investment Plan?
The following people can benefit from investing in a 5-year investment plan:
- Investors who want to enjoy tax exemption
- Investors who want to build their savings
- Investors who don’t want to take high risks
- Investors looking for stable returns
How to Choose the Best Investment Option for A 5-Year Tenure?
Choosing the right investment option for a long-term tenure can be hard if critical factors are not taken into consideration. Here’s a curated list of factors that can benefit you in helping choose the right investment:
- Investment Objective and Flexibility: Clearly define why you’re investing. Whether it’s wealth accumulation or saving for a specific goal, ensure the investment offers the flexibility to add funds or adjust as needed.
- Risk Tolerance and Expected Returns: Understand your willingness to take risks and set realistic return expectations. While higher returns often come with greater risks, being comfortable with the potential ups and downs is vital.
- Liquidity and Lock-in Periods: Evaluate if you need to access the funds within the tenure. Some investments might come with penalties for early withdrawals or specific lock-in periods.
- Tax Implications and Inflation: Look into your chosen investment’s potential tax benefits or liabilities. Additionally, ensure your returns outpace inflation, preserving the real value of your money.
- Diversification and Costs: Spreading your investment across different assets can mitigate risk. However, be wary of associated fees or charges, as these can diminish returns over time.
- Reputation of the Platform: Research its past performance and reputation before diving into an investment platform or fund.
- Economic Factors: Global and local economic conditions, including political stability and interest rate movements, can influence investment outcomes.
The above article gives a detailed overview of the best investment plan for 5 years. This investment strategy offers a lot of benefits. However, like all investment plans, you must be cautious. Ensure you have funds for emergencies before locking them in investments. Be wary of scams that offer opportunities that seem too good to be true.
Take the guidance of experts in the industry like WintWealth. From understanding your financial goals to helping you achieve your short-term goals, it is one of the country’s most trusted online platforms.
FAQs about best investment plan for 5 years
When is the right time to buy a 5-year investment plan?
The investment plan varies with each person’s financial goals. However, the earlier you start, the better results you will enjoy. A new parent can invest to build a sufficient corpus to finance their children’s dreams. Similarly, people who are close to their retirement can start planning for a comfortable life by investing in 5-year saving plans. By investing in a 5-year investment plan, they can build enough income to enjoy a stress-free life when they are no longer working.
What is the eligibility criteria for an investment plan for 5 years?
For most investment schemes, Indian citizens residing in India and above the age of 18 years are eligible to invest. They will need to attach a photo ID, identification and residence proof, and PAN.
What are the risks involved in a 5 year investment plan?
Like all investment plans, 5 year investment plans will come with a few risks like:
1. Inflation risk
2. Default risk
3. Liquidity risk
Is there tax exemption on fixed deposits for less than 5 years?
No, tax exemptions are available on fixed deposits with a tenure of 5 years or more.
Which is the better investment: SIP or RD?
Both have their pros and cons. RDs offer more capital safety than SIPs (Systematic Investment Plans). However, SIPs are tax-efficient (such as ELSS funds) and can be liquidated without attracting a penalty.
How to double the money in 5 years?
Achieving this requires an annual return of about 14.87% (using the Rule of 72). Investments like aggressive mutual funds, stocks, or real estate can potentially offer such returns, but come with associated risks.
Which are the top investment options with tax benefits?
Equity Linked Saving Schemes (ELSS), Public Provident Fund (PPF), National Pension System (NPS), and Senior Citizen Savings Scheme (SCSS) are prominent options that offer tax advantages.
Which is the best 1-time investment option for 5 years?
Fixed Maturity Plans (FMPs) or 5-year bank Fixed Deposits (FDs) are suitable for a one-time investment with a 5-year horizon, offering relatively safe returns.
What is the best five-year savings plan in 2023?
A diversified mutual fund targeting a medium-term horizon or a five-year National Savings Certificate (NSC) is a notable choice.