Best Investment Plan for 5 Years in India 2023

Why is it Important to Invest?

While there are various reasons why it is important to invest, the most significant one is financial stability. We all earn money by working for others or by working for ourselves. Investing is a process in which we put this money to work to earn more money for our future. Let us look at a few reasons why it is important to invest -

• Returns on Your Investment - While keeping your money in the bank account also helps you earn interest, it is not the best option. There are numerous other ways in which you can earn by investing.
• Meeting Financial Goals - Investing your money helps you build wealth in the long term and helps you meet your financial goals like retirement planning, buying a house, children’s education, or simply wealth creation.
• Saving Taxes - There are certain investments that are promoted by the government of India. To make these investment options more attractive, the government provides tax benefits on them. For example, investing in schemes like PPF and NPS can help you save taxes under section 80C.
• Beat Inflation - Inflation gradually erodes the value of your money by raising the cost of goods and services. Choosing the correct investment options can help you beat the rate of inflation and generate real income through investing in various products and schemes.
• Acts as an Emergency Fund - These investments ensure forced savings and also act as an emergency fund for unprecedented situations such as medical emergencies or financial scarcity.

Best Investment Plan for 5 Years

If you are planning to invest for 5 years and don’t know which are the best investment plans for 5 years in India, given below are a few 5-year investment plans.

Fixed Deposit

• Fixed deposit is a type of FD in which you have to invest a lump sum of money at a fixed rate and for a fixed tenure
• The minimum tenure of an FD is 7 days, and it can extend upto 10 years. So, if you are looking for the best investment plan for 5 years in India, a 5-year FD can be your go-to option.
• The interest rate on an FD is generally more than that on savings accounts and recurring deposits. FDs are one of the safest investment plans as they are not affected by any kind of market fluctuations.
• Moreover, you can get regular payouts on interest, such as monthly, quarterly, half-yearly, and annually. You can also invest in tax-saving FDs as they allow you to claim tax benefits under section 80C of the Income Tax Act.

Recurring Deposit

• Recurring Deposit or RD is similar to FD. The only difference is that RD allows you to invest small amounts regularly.
• You can invest a fixed amount monthly at a fixed rate and for a fixed time period. So, even if you want to find the best investment plan for 5 years, you can invest in an RD for 5 years.
• RDs are a great investment option for those who have a regular income.

Post Office Time Deposit

• Post office time deposit is a fixed deposit offered by the Indian postal services. All the features are similar to an FD.
• You can invest a lumpsum amount at a fixed rate for a fixed time. This scheme is backed by the government of India and provides guaranteed returns.
• The tenures for investing in a POTD can be 1 year, 2 years, 3 years, or 5 years.
• It also allows you to claim tax benefits under section 80C if you invest in the 5-year POTD up to Rs.1.5 lakhs.

Post Office Monthly Income Scheme

• This scheme provides a monthly fixed income to the investors for a period of 5 years.
• Such a scheme is ideal for those who want to earn a regular income and have a low-risk appetite.
• It can be a great option if you are looking for the best investment plans for 5 years.

Large Cap Mutual Funds

• Large-cap mutual funds are the funds that invest 80% of the pooled money into large-cap companies.
• Large-cap companies are companies that have a market capitalization of more than Rs.20,000 cr. and are among the top 100 in the country.
• Such mutual funds generally provide stable returns to investors and are less risky than small-cap and mid-cap funds.
• However, mutual funds are volatile in nature and are affected by market fluctuations. But at the same time, these investment options have the potential to generate higher returns.

Hybrid Mutual Funds

• Hybrid mutual funds are the type of funds that invest in both equity and debt funds. However, the equity and debt component of a hybrid mutual fund varies from fund to fund.
• These funds are one of the best investment plans for 5 years as they provide both regular income and the potential to earn higher returns.
• These funds provide both growth and stability, making it a great option for those with moderate risk tolerance levels.

Fixed Maturity Plans

• FMPs are debt mutual funds that are close-ended.
• Such mutual funds invest only in debt instruments and have a fixed tenure of 1-5 years.
• These funds offer fixed returns at the existing interest rates.
• It is the best investment plan for 5 years for those who have low-moderate risk tolerance levels and are looking for fixed returns.
• These plans have a pre-defined maturity period and are not subject to market volatility.

National Savings Certificate (NSC)

• The National Savings Scheme or NSC is a fixed-income scheme that has a tenure of 5 years.
• It is a safe and secure investment option as it is backed by the Government of India and is not affected by market fluctuations.
• It is suitable for those investors who are risk-averse.
• The interest on this investment is calculated every year, and the principal, along with interest, is paid at the maturity of the instrument.
• While investing in NSC has tax benefits, the interest on NSC is taxable and has a lock-in period of 5 years.

Senior Citizen Savings Scheme (SCSS)

• It is a savings scheme that is designed exclusively for senior citizens.
• It is a government scheme and offers higher interest rates than other fixed income schemes. It has a lock-in period of 5 years.
• It is one of the best investment plans for 5 years that provides regular income and tax benefits.
• This scheme is only available to individuals above 60 years of age.
• The interest on this scheme is paid quarterly and has a lock-in period of 1 year.

ULIPs (Unit Linked Insurance Plans)

• ULIPs are investment plans that offer the benefit of both investment and insurance. A part of the amount invested by the investor is invested in mutual funds, and the rest is used to take a life insurance cover.
• These plans allow you to shift your investments from debt to equity and vice versa, as per the market conditions.
• ULIPs have a lock-in period of 5 years; therefore, are one of the best investment plans for 5 years in India.
• The amount invested in ULIP is tax-free up to Rs.1.5 lakhs under section 80C.
• The payout at the end of the policy term is also free from tax under section 10(10D) of the income tax law.

How to Choose the Best Investment Plan?

Investing for a short duration of time can be trickier as you have to foresee the requirement of liquidity, consider your risk appetite, and balance the risk to return portfolio before choosing the best investment plan for 5 years in India. While there are various factors that can affect your choice of the best investment plan for 5 years, we have listed a few of them below.

• Investment Objective:
  The purpose that you want to accomplish by investing your money is one of the most important factors in choosing the right investment plan. For example, if you want to buy a car after 5 years, then your investment plan shouldn’t have a lock-in period of more than 5 years.
• Risk Capacity:
  Most investments come with a certain amount of risk. This risk can be related to market volatility, credit risk, etc. Therefore, it is important to consider your risk-taking capacity before choosing an investment plan. For example, if you are a risk-averse investor, you must go for fixed investment plans.
• Time Horizon:
  Another important factor that affects your choice of investment is the time duration for which you want to invest your money. For example, if you are looking for the best investment plan for 5 years, then you should choose your investment accordingly.
• Return on Investment:
  You must also consider the return that each investment plan provides and make sure it aligns with your investment objective.
• Tax-saving:
  The tax benefit is yet another important factor to consider when choosing the best investment plans for 5 years in India. Make sure the investment plan you opt for qualifies for tax deductions and exemptions.

Investing wisely is a pivotal step toward securing your financial future. In the intricate world of finance, choosing the best investment plan for a 5-year horizon in India demands careful consideration of your financial goals, risk tolerance, and time horizon. Whether you opt for the safety of fixed deposits, the flexibility of mutual funds, or the tax advantages of government-backed schemes, remember that each investment avenue serves a unique purpose.

The key lies in aligning your investment choices with your specific objectives and financial profile. So, it is a great idea to consult experts and get the best investment plan for 5 years as per your situation.

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