Best Investment Plan for 5 Years

Investing for a short to medium-term horizon of 5 years can be challenging, as you need to balance the risk and return of your portfolio. You must also consider your financial goals, risk appetite, liquidity needs, and tax implications.

Best Investment Plan for 5 Years in 2024

Scheme Name	Expected Annual Return	Minimum Investment Amount	Maximum Investment Amount	Lock-in Period
Fixed Deposit	5.5% to 8%	Rs. 1,000	No limit	5 years
Recurring Deposit	5% to 7.50%	Rs. 100 p.m	No limit	5 years
Post Office Time Deposit	7.50%	Rs. 1,000	No limit	5 years
Post Office Monthly Income Scheme	7.40%	Rs. 1,000	Rs. 9 lakh – 15 lakh	5 years
Large Cap Funds	10% to 12%	Rs. 500- 1,000	No limit	No lock-in
Hybrid Funds	8% to 10%	Rs. 500- 1,000	No limit	No lock-in,
Fixed Maturity Plans (FMPs)	4% to 5%	Rs. 5,000	No limit	3 to 5 years
National Savings Certificate (NSC)	7.70%	Rs. 1000	No limit	5 years
Senior Citizen Savings Scheme (SCSS)	8.20%	Rs. 1,000	Rs. 30 lakh	5 years, extendable by another 3 years up on maturity

1. Fixed Deposit (5 Year)

A fixed deposit (FD) is a type of bank deposit where you invest a lump sum amount for a fixed period of time at a fixed rate of interest. FDs are safe and secure investments that offer guaranteed returns and capital protection. You can choose the tenure of your FD from 7 days to 10 years. Thus, for an investment duration of 5 years, FD can be an investment choice for many investors.

FDs offer a higher interest rate than a savings account or a recurring deposit. Also, FDs offer regular interest payouts monthly, quarterly, half-yearly, or annually. Tax savings FDs qualify for tax benefits under Section 80C of the Income Tax Act, 1961, up to INR 1.5 lakh per year. 

2. Recurring Deposit

A recurring deposit (RD) is a type of bank deposit where you invest a fixed amount every month for a fixed period of time at a fixed rate of interest. RDs are similar to FDs, except they allow you to save regularly and accumulate wealth over time. RDs are suitable for those with a regular income who want to save for a specific goal. 

Certain 5-year RDs qualify for tax benefits under Section 80C of the Income Tax Act, 1961, up to INR 1.5 lakh per year. On maturity, you receive both interest income and principal.

3. Post Office Time Deposit

A post office time deposit (POTD), also known as a post office fixed deposit, is a fixed deposit scheme that the Indian Postal Service offers. You can invest a certain amount for a fixed period of time at a fixed rate of interest. The return from POTD is guaranteed, and the government of India backs the scheme. 

You can invest in POTD for tenures of 1 year, 2 years, 3 years, or 5 years. You can avail tax benefits under Section 80C of the Income Tax Act, 1961, up to INR 1.5 lakh per year if you invest in a 5-year POTD.

4. Post Office Monthly Income Scheme

A post office monthly income scheme (POMIS) is a scheme that offers a fixed monthly income to investors for a period of 5 years. The scheme is ideal for those who want a regular and assured income without taking any risks. You can invest up to INR 9 lakh individually or INR 15 lakh jointly in POMIS. Transferring POMIS from one post office to another. 

5. Large Cap Mutual Funds

Mutual funds are pooled investment vehicles that invest in various securities such as stocks, bonds, commodities, etc. Large-cap funds are equity schemes that invest at least 80% of their assets in stocks of large-cap companies. 

Large-cap companies have a high market capitalisation and are among the top 100 in the country. These companies are usually well-established and have a stable track record of providing dividends and wealth to investors. 

Since mutual funds invest in equities, they have the potential to generate higher returns than FDs, RDs, and POTDs. At the same time, mutual funds are more volatile. 

6. Hybrid Mutual Funds

Hybrid funds, also known as balanced funds, invest in a mix of equity and debt instruments. These funds provide investors with the benefit of both asset classes, aiming to achieve capital appreciation and income generation. 

Hybrid funds strike a balance between growth and stability, making them suitable for individuals with moderate risk tolerance levels. The equity component of hybrid funds offers the potential for higher returns, while the debt component provides stability and regular income. 

The asset allocation between equity and debt varies among hybrid funds, and investors can choose based on their risk tolerance and investment objectives.

7. Fixed Maturity Plans (FMPs)

Fixed Maturity Plans (FMPs) are closed-end debt mutual funds with a fixed tenure, typically ranging from 1 to 5 years. These funds invest in fixed-income instruments such as government bonds, corporate bonds, and money market instruments. 

FMPs offer a predictable return based on the prevailing interest rates and are suitable for investors looking for fixed returns with low to moderate risk. The returns from FMPs are relatively stable as they are not subject to market fluctuations once the investment is made. 

FMPs have a predefined maturity date, and investors can align their investment horizon accordingly. However, it’s important to note that FMPs have a lock-in period.

8. National Savings Certificate (NSC)

The National Savings Certificate is a government savings scheme with a fixed tenure of 5 years. It offers a fixed interest rate and provides tax benefits under Section 80C of the Income Tax Act. NSC is a secure investment option backed by the government, making it suitable for risk-averse investors. 

The interest is compounded annually, and the investment amount, along with the accrued interest, is paid at maturity. The interest earned is taxable, and the investment is subject to a lock-in period of 5 years.

9. Senior Citizen Savings Scheme (SCSS)

The Senior Citizen Savings Scheme is a government scheme designed specifically for senior citizens. It offers a higher interest rate than other fixed-income options and has a lock-in period of 5 years. SCSS provides regular income to senior citizens and offers tax benefits. 

SCSS is a safe and reliable investment option, making it suitable for retirees or individuals above 60 years of age. The interest earned from SCSS is payable quarterly and provides a regular income stream. Premature withdrawal is allowed only after the completion of one year, subject to certain conditions.

Conclusion

Investing for 5 years can be a smart way to achieve your short to medium term financial goals, while also saving on taxes and earning decent returns. However, you need to consider your risk tolerance levels, liquidity needs, and tax implications before choosing an investment option. 

You can opt for safe and secure investments like FDs, RDs, POTDs, POMIS, NSC, and SCSS, or you can go for higher returns with higher risk investments like mutual funds. You can also diversify your portfolio by investing in a mix of different asset classes and schemes. 

The best investment plan for 5 years in India depends on your personal preferences and financial objectives. You can consult a financial advisor or use online tools to compare and select the best investment option for you.