Creating a successful investment portfolio is every investor’s dream. The key to achieving this is knowing your investment goals and aligning the investments accordingly which also involves segregating them in terms of their time frames for better implementation. While short-term investment options require liquidity as their prime feature, medium-term investment options of say 5 years, should be a combination of sufficient liquidity but primarily a good pace of growth or compounding. So are you too looking for such investment options to park your funds for 5 years? Then check out this blog to learn about popular investment choices in this category and start your investment journey.
Read More: Best SIP plans for 5 years
Types of investment plans for 5 years
The list of popular investment options with a tenure of 5 years has both traditional as well as dynamic investment options to cater to every category of investors. The details of these investments are given here.
NSC
NSC (National Savings Certificate) has become one of the most popular investment options in recent times. This is a government-backed savings scheme that is aimed at providing fixed income as well as a tax savings option for residents in India. It has a fixed tenure of 5 years and offers an interest rate of 7.7% per annum. Investors can start NSC investment with a minimum of Rs. 1,000 and there is no upper limit or cap on maximum investment. This scheme also offers tax benefits in the form of deductions under section 80C up to Rs. 1,50,000, however, the interests received from NSC are taxable in the hands of the investors.
FDs, and RDs
Bank FDs and RDs although a traditional investment option are quite attractive for medium to long term investment. With the rise in interest rates recently, investing in bank FDs and RDs is gaining popularity for all age groups, especially senior citizens who get additional interest from banks. The added advantage of investing in FDs and RDs is the flexible tenure of investment and the tax benefit in the case of 5-year tax-saving bank FDs. These FDs come with a 5-year lock-in period to get a deduction under section 80C up to Rs. 1,50,000. The interest received from the bank FDs and RDs is taxable in the hands of investors at their applicable slab rates.
Post Office Time Deposit
Post Office Time Deposit scheme is designed to be inclusive and accessible to individuals of all ages across the nation. The eligible applicants have to be Indian citizens above the age of 10, while guardians can invest on behalf of infants or younger children. The minimum deposit requirement in this scheme is just Rs. 1,000 making it accessible to the masses. These schemes aim to extend investment opportunities to rural and remote areas of India, where resources and facilities are limited. They offer tax-saving benefits under Section 80C and provide flexibility in choosing lock-in periods. Investors can withdraw funds as needed, and interest payments can be received in cash or by cheque. The return rates for these schemes range from 6.9% to 7.7%, depending on the investment amount. A maximum of Rs. 1,50,000 can be invested in Post office time deposits.
ULIPs
ULIPs, or Unit Linked Insurance Plan, combines life insurance with market-related investments. When investors pay premiums, a portion is set aside for life coverage while the rest is invested in equity and debt funds, offering financial security and liquidity. It’s a long-term savings option with tax benefits under Section 80C and 10(10D), allowing investors to switch between investment funds. ULIPs typically have a 5-year lock-in period. While analyzing returns can be complex due to premium commitments, they usually depend on the investment tenure. Most ULIPs have easy eligibility criteria and are open to resident Indians between the ages of 7 to 70 years.
ELSS
Mutual funds are a dynamic investment option that can cater to investors of all age groups and diverse investment tenures. Investors can invest in liquid funds, mutual funds with an investment horizon of 5 years, hybrid mutual funds, large-cap mutual funds, etc. Equity Linked Savings Scheme is also a type of equity mutual fund that has a lock-in period of 3 years and offers tax benefits under section 80C up to Rs. 1,50,000. Additionally, investors can also gain exemption from long-term capital gains of up to Rs. 1,00,000 beyond which they are taxable at 10% without the benefit of indexation. ELSS and other mutual funds also offer flexible investment options in the form of SIPs making them accessible for investors with limited capital.
FMPs
Fixed Maturity Plans (FMPs) are close-ended debt mutual funds with fixed tenures, typically spanning 1 to 5 years, investing in fixed-income instruments like government and corporate bonds. They provide predictable returns based on prevailing interest rates, making them suitable for low to moderately risk-averse investors seeking stable returns unaffected by market fluctuations. FMPs have preset maturity dates, allowing investors to align their investment horizon, but they also come with a lock-in period. FMPs are ideal for those looking for the security of bank deposits with the potential for higher returns. Notably, FMPs of over 3-year tenures enjoy tax advantages, with interest considered long-term capital gains and taxed at 20% of the indexed value, offering a tax-efficient investment option.
SCSS
The Senior Citizen Savings Scheme (SCSS) is a government-backed savings option in India designed for individuals aged 60 and above. It offers a higher interest rate than bank fixed deposits, currently at 8.2%, with a fixed rate for the entire tenure. As of April 1, 2023, senior citizens can invest up to Rs. 30,00,000, an increase from the previous limit of Rs. 15,00,000. While SCSS is a safe investment choice, it comes with the limitation that if the interest earned exceeds Rs. 50,000 in a financial year, it becomes subject to TDS (Tax Deducted at Source). This is in contrast to PPF schemes, where all earnings are tax-free.
Conclusion
When choosing a 5-year investment plan, it’s vital to define the financial goals, evaluate upcoming expenses, and ensure they align with the financial capacity. Additionally, investors have to consider factors such as dependents, existing insurance, risk tolerance, expected returns, provider reputation, and plan terms and conditions to make a well-informed investment decision.
FAQs
Investment plans for 5 years are crucial as they allow individuals to achieve specific financial goals, build wealth, and secure their financial future through disciplined savings and growth potential over a defined period. Additionally, they provide a structured approach to financial planning and risk management.
The 50/30/20 rule in finance is a budgeting guideline that suggests allocating 50% of your income to needs (essential expenses like housing and utilities), 30% to wants (discretionary spending like entertainment), and 20% to savings and debt repayment (including saving for the future and paying down debts).
Yes, Fixed Deposits (FDs) are generally considered safe investments because they are backed by banks or financial institutions and government-backed insurance schemes like the Deposit Insurance and Credit Guarantee Corporation (DICGC) thereby providing capital protection.
Yes, post office investments are generally considered safe investment options as they are backed by the government and offer a level of capital protection. However, the returns may vary depending on the specific post office scheme and prevailing interest rates.
