Best Investment Plan for 5 years

We’re sure, there have been times when you felt confused about long-term investments and commitment with it. That’s what leads you here — to the best investment plan for 5 years that’s suitable for you. However, there are a lot of options out there, so what do you choose?

So, in this article, we will share the best investment plans and how you can choose the best one for yourself.

Which Are The Best Investment Plans for 5 Years?

There are a lot of investment plans and options for a 5-year plan out there. Here, we are going to put out all the investment options for you to choose from:

1. Savings And Deposits

FDs, RDs, and savings accounts are some of the best investment plans for 5 years in India, mostly because they are safe and offer good returns. If you’re a beginner investor, let’s learn more about these investment plans: 

(1.1) Fixed-Term Deposits

Fixed deposits, also known as FDs, are a form of investment in which the investor has to invest a lump sum amount at a fixed interest rate for a predefined tenure. FDs can be made for up to 10 years. So, you can choose a tenure period of 5 years as well. 

The interest rate is usually more than that on a savings or recurring account. Moreover, FDs are one of the safest investment options out there with tax benefits. 

• The interest rate for a 5-year FD: 7% - 8.5% p.a.
• Minimum deposit: ₹1,000

Read More: Aditya Birla Investment Plans: A Comprehensive Guide

(1.2) Recurring Savings

Recurring Savings, also known as Recurring Deposits (RDs), allow you to invest a small amount periodically. Similar to FDs, it works at a fixed interest rate and tenure, however, you get to make a monthly investment regularly. Hence, it’s also a feasible option for people with a regular income.

• Interest rate: 6% - 7%
• Minimum deposit: ₹100 per month

(1.3) Savings Account

A savings bank account allows you to deposit your money and earn interest on it. This is the most basic type of account that you can open in any bank. You can withdraw your money anytime you need it. Moreover, a savings account is a type of liquid investment, which makes transactions easy. You can make online payments as well with your savings account.

• Interest rate: 4% - 7%
• Minimum deposit: ₹500 - ₹10,0000 depending on the bank

2. Post Office Savings 

Post Office Savings Schemes are the schemes offered by the Indian Postal Service, backed by the government of India. There are a lot of post office schemes that you can avail. Below are the two schemes that are best for a 5-year investment plan.

(2.1) Post Office Time Deposit

Post Office Time Deposit is a fixed deposit scheme offered by the Indian Postal Service. This scheme allows you to make a fixed, lump sum deposit at a fixed rate for a fixed time. You can invest in this scheme for either 1 year, 2 years, 3 years, or 5 years. So, if you want an investment plan for an even shorter time, this is the best investment plan for 1 year.

• Interest rate: 7.5% p.a.
• Minimum deposit: ₹1,000

(2.2) Post Office Monthly Income Scheme

Post Office Monthly Income Scheme allows investors to invest a lump sum amount and receive it in the form of EMIs with an added interest for a fixed period. This scheme is the best investment plan for monthly income.

• Interest rate: 7.4% p.a.
• Minimum deposit: ₹1,000

3. Mutual Funds + Stocks

A Mutual Fund is a company that uses the investors’ money and invests it in securities like stocks, bonds, and short-term debt. These funds depend highly on market returns and so, they are risky. The four major types of mutual funds are:

• Money market funds
• Bonds or fixed-income funds
• Stocks or equity funds
• Hybrid funds

(3.1) Large Cap Mutual Funds

Large-cap mutual funds are the funds that invest 80% of the money into large-cap companies. But what are these large-cap companies? Well, large-cap companies are those with a market capitalization of more ₹20,000 Cr. and are among the top 100 in the country.

Such mutual funds provide stable returns and are less risky than medium-cap or small-cap funds. However, one must note that mutual funds hold some risk and are easily affected by market fluctuations. 

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(3.2) Hybrid Mutual Funds

Hybrid funds are the type of funds that invest in both equity and debt mutual funds. However, note that the equity and debt component of a hybrid fund varies according to different funds. 

These types of mutual funds are one of the best investment plans for 5 years as they provide the investor with a regular income and the potential to earn higher returns. In addition, if you have a moderate risk tolerance, hybrid funds can be a great option for you with growing and stable returns. 

(3.3) Index Fund

An index fund is a type of mutual fund that tracks the components of a financial market index. Some of the benefits of index funds include low fees, no-bias investing, tax benefits, and the ease of managing them. These are considered to be less risky than individual stock investments. However, it still includes market fluctuations and so, you should think of your risk tolerance.

(3.4) Small Cap Mutual Fund

Video: https://www.youtube.com/embed/TMSxoLdjIXc?si=jwfngXU5248_Jxl2

Small-cap mutual funds are those funds which invest in small-cap companies with a market valuation of less than ₹5,000 Cr. These companies have a lot of potential for growth in the long run. However, they are considered to be risky for investment as their chances of getting successful are low. So, you should consider these only if you have a high-risk tolerance. 

(3.5) ELSS Mutual Fund

Equity Linked Savings Scheme (ELSS) is a type of mutual fund with a 3-year lock-in period. In this fund, an investment of up to ₹1.5 lakh is eligible for tax deduction under Section 80C of the IT Act. Also, a maturity amount of ₹1 lakh or less than that is non-taxable in terms of capital gains. 

4. Fixed Maturity Plans (FMPs)

Fixed Maturity Plans (FMPs) are debt mutual funds that are close-ended, which means that these funds only invest in debt instruments and have a fixed investment tenure of 1-5 years. Additionally, these funds offer fixed returns at the existing interest rate. 

If you have a low to moderate level of risk tolerance, an FMP is the best investment option for fixed returns. And since these plans have a pre-defined maturity plan without any market volatility, FMPs are safe to invest in.

Read More: Best SIP Plan for 20 years

5. Government Savings Schemes

There are a lot of savings schemes that are offered by the government of India. Here are all the government savings schemes:

6. Senior Citizens’ Savings Scheme

As the name suggests, this savings scheme is specially designed for senior citizens by the Indian government. It offers higher returns as compared to other fixed-income schemes with a lock-in period of 5 years. It is one of the best schemes which offer regular income and tax benefits. 

Only citizens above age 60 can avail benefits of this scheme. The interest on this scheme is paid quarterly and has a lock-in period of 1 year.

• Interest rate: 8.2% p.a.
• Minimum deposit: ₹1,000

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7. Retirement and Pension Plans

There are two popular retirement plans: ULIPs and Pension plans. Let’s take a better look at them:

(7.1) ULIPs (Unit Linked Insurance Plans)

Unit Linked Insurance Plans, also known as ULIPs, are the type of investment plans that offer the benefits of both investment and insurance plans. In these plans, a part of the total investment is invested in mutual funds, while the rest is used for a life insurance plan for the individual. 

One benefit of these plans is that they allow you to shift your investments from debt to equity, and vice-versa. ULIPs have a lock-in period of 5 years so, perfect for a 5-year investment. There are tax benefits under this scheme.  

• Interest rate: 7.35% p.a.
• Minimum deposit: ₹1,500 per month

(7.2) Pension Plans

A pension plan is a type of retirement plan for individuals who want to invest in their plans. One can either make a lump sum investment or monthly regular payments. These investments end up getting repaid to you during your retirement years. 

• Interest rate: 8% - 10% p.a.
• Minimum deposit: ₹6.000 per annum

8. Bonds

Bonds are a type of debt security that typically represents a loan. For instance, when someone buys a bond, they are lending their invested money to the issuer for a defined period. 

In different cases, the issuer could be a government or corporation. 

As a return, borrowers offer an interest rate to the investors. Bonds are a great way to earn investment returns as they are relatively safe. However, like every other investment comes with some risk, and so do bonds. 

9. Stock Market

A stock market investment is a method of investing in which companies raise capital by selling shares to their investors. In simple words, investors get to own a share of the companies they invest in. 

These financial activities and exchanges are held through formal exchanges and via over-the-counter (OTC) marketplaces. Although stock market investments could lead to high returns, they are associated with high financial risks. 

Can You Double Your Money in 5 Years?

One way to double your money in 5 years is through mutual funds. If we do not consider the market risks at some point, mutual funds can offer significant returns within 5-6 years. It is because mutual funds offer higher returns than any other investment plan, with a higher risk too. 

Long-term mutual fund investments offer an interest rate ranging from 12% to 15% that grows year over year. And so, it holds the potential to double your money in 5-6 years.

Which Investment Plan Has The Highest Return?

According to market history, equity investments offer the highest returns, beating the inflation rate. But at the same time, one must remember that equities offer market-linked returns, and hence, they hold a high-risk factor. So, you should only invest in equities if you have a high-risk tolerance. Additionally, you can also invest in multiple investment avenues for a stream of high returns. 

How to Choose the Best Investment Plan?

Below are 5 factors that you should consider while choosing an investment plan that is best for you:

• Alignment with your goals: Ask yourself, “Does this investment plan align with my goals?” If the answer is yes, go ahead with it otherwise, maybe wander a little more.
• Risk profile: Research the risks involved with your chosen investment plan. If your risk tolerance level allows for the investment, it’s good to go with.
• Death benefits: Know the details related to nomination and death benefits.
• Withdrawal facility: The lock-in period matters a lot when you want to withdraw funds for an emergency. So, you can look for it too.
• Brand value: Does the company you are investing in have a good reputation in the market? Has it been consistent enough in the past few years with the returns? If yes, then it’s good to go with.

Benefits of Investment Plans for 5 Years

Having an investment plan is a great way to beat inflation and create wealth for yourself and your loved ones. So, here we have listed some benefits that you can gain by investing for 5 years:

• Flexibility

If you look at the list, most of the 5-year investment plans are flexible, which means, you can choose or switch between different investment funds. Depending on how the market is, and your risk tolerance levels, you can always alter your investments. 

• Diversification

Diversifying your investment portfolio can help you lower the risk of losing your money. So, instead of putting all your money in one scheme, you can put a portion of it in different schemes. 

• Risk

Short-term investment plans are considered to be safe oftentimes, mostly because they offer low returns. Still, there are limited options that offer high returns while being safe.

• Liquidity

Another benefit of short–term investment plans is that you can withdraw a part or full of your investments without having to worry. It’s because short-term investment plans rarely have a lock-in period. 

• Tangible results

If you’re someone who doesn’t want to wait for a long time to see your money grow, short-term investment plans are for you. Your money will still grow but at a low pace. 

FAQs

1. Where should I keep my money for 5 years?

You can keep your money in an FD or invest it in other investment options according to your risk tolerance. 

2. What are the eligibility criteria for an investment plan for 5 years?

Indian citizens who are over 18 years old can invest in a variety of investment schemes of their own choice. Below are other eligibility criteria that must be fulfilled:

• Address proof
• Photo ID
• Aadhar Card
• Bank passbook
• PAN Card

3. When is the right time to buy a 5-year investment plan?

Every person has their own financial goals that they want to achieve, and so do you. However, you can start as early as possible. Anyway, it’s important to know what you want and then streamline your investments accordingly.

4. What are the risks involved in investing? 

There are 9 different forms of risks involved on the basis of which investment option you choose:

• Risk associated with the stock market
• Risk of Liquidity
• Risk of concentration Credit danger
• Risk of reinvestment
• Risk of inflation
• Longevity danger
• Foreign investment risk

5. Is it better to invest in one option or diversify?

It is better to diversify your investments than investing in just one plan because it lowers your risk of losing money in case one investment plan falls apart.