Introduction Of Best Investment Plan For 1 Year
Today, we are going to discuss the Best Investment Plan For 1 Year. Short-term investments can yield stable returns, yes it is less as compared to the long-term investment plans but, In several cases, investors do invest for 1 year. Most investors want to make investments in such a way that can bring sky-high returns as quickly as possible without the risk of losing principal money.
This is why many investors always prefer short-term investment plans where they can double their money in a few months or years with very little or no risk at all. But unfortunately, a high return and low-risk combination in an investment does not exist. In reality, risk and returns are directly related. They go hand to hand, the higher the returns, the higher the risk, and vice versa.
Some investments carry high risk but have the potential to generate higher inflation-adjusted returns than other asset classes in the long term while some investments come with low risk and therefore lower returns. So, choosing the best short-term investment plan is very important which matches your portfolio and helps you to reach financial objectives.
What are short-term investment plans?
Investment options in India can be classified as short term and long term. Short-term investments can be made for shorter tenors of a year or two. It could be used to buy jewelry, a bike, a car, a laptop, plan your holidays, or anything that you might require soon.
Several 1-year investment plans can help you make some quick returns. Whereas, If you are investing for more than 5 years, it can be classified as long-term investments. It also means that you won’t be requiring those funds until the need arises. You could also consider re-investing your short-term investment gains, which can help contribute to your future.
Let’s have a look at the 10 best investment plan for 1 year in India, which are considered some of the best 1 year investments you can choose from while planning.
Debt Mutual Funds
Debt funds are ideal for short-term investments due to their risk-averse and open-ended nature. These funds offer a high level of security as they invest in high-rated debt instruments such as Treasury bills, government, and corporate bonds.
Also, Debt funds have the potential to offer much higher returns than a regular savings bank account. Under debt funds, you can choose to invest in low-duration funds that mature between 6 months to 1 year. Apart from that, you may also consider investing in money market funds, which invest in money market instruments that mature within a year.
These short-term investment plans invest in fixed income securities consisting of corporate bonds, money market instruments, treasury bills, and other debt securities. As compared to equity mutual funds, these are less risky. You can choose to invest in debt funds if you are looking for a high amount of liquidity, earn regular income and tax benefits.
I. Returns – Currently, you can earn upto 7% per annum but, the returns are not consistent or confident.
II. Liquidity – The units can be redeemed in a short time. So, the liquidity is high.
III. Taxation – Profits made under 36 months are added to your income and taxed. However, the gains made above 36 months are taxed at a rate of 20% post-indexation.
Debt Funds are further classified as,
Short term Debt Funds
Short-term debt mutual funds are referred to a scheme where the plans have maturity varying from 1-3 years. These are low-risk funds offering moderate returns to the investors. Short-term debt funds are often compared with fixed deposits(FDs) due to similar investment terms. But, unlike FDs, these debt funds do not attract any penalty if redeemed before maturity.
Ultra Short term Debt funds
Ultra short debt funds are mutual fund schemes where the maturity ranges from 3-6 months. It has zero risks if you are looking to invest for a few months. As compared to FDs, this type of fund offers slightly high returns.
Liquid funds are open-ended debt funds that invest in money market instruments like Treasury bills, commercial papers (CP), and term deposits and have a maturity range of 3-6 months. It is a low-risk mutual fund scheme that offers high returns than FDs or savings accounts in the bank.
If you are looking for a short-term investment period, liquid funds are ideal which offer 7-9% of returns. The liquidity property makes this scheme attractive options among investors. You can easily gain stable returns by taking low risks, keeping in mind your short-term financial goals.
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Fixed Maturity Plans (FMP)
Fixed Maturity Plans are close-ended mutual funds that invest in fixed income instruments with corresponding maturities. The fund manager will pick instruments such that they mature at almost the same time. Fixed maturity plans come with a maturity period ranging between 1 month to 5 years. As these funds hold securities until maturity, they are not influenced by the interest rate volatility.
The main objective is to offer steady returns over a period, also as close-ended debt funds, fixed maturity plans invest in corporate bonds, certificate of deposits commercial papers, money market instruments, government securities, and high rates non-convertible debentures.
Most common tenures for this type of plan range from 30-180 days, 370 days, and 395 days. FMPs can be either dividend or growth mutual fund options. If it is a fixed maturity dividend plan then, the fund house levies Dividend Distribution Tax (DDT). For the FMP growth option, then capital gains tax is applicable with the benefit of indexation.
I. Tenure – The tenure varies from 1 month to 5 years.
II. Liquidity – The liquidity is low in this plan. It is suggested to invest in these investment plans if you consider a one-time investment for a specific lock-in period.
III. Returns – These funds are debt-oriented to provide consistent returns in a fast maturity period and shields you from market fluctuations. But, the returns are not fixed either assured.
IV. Taxation – The gains in 36 months are considered as profits hence, are taxed at a rate of 20% publish-indexation.
Arbitrage Mutual Funds
These are hybrid mutual funds that generate returns by simultaneous selling or buying funds in different markets to take advantage of different prices. Arbitrage Mutual Funds invest in cash and derivative segments with arbitrage opportunities of the equity market and opportunities in the derivates segment.
These funds are open-ended, and you may invest in these if you can stay invested for at least one year to take advantage of the tax rules. The risk involved in arbitrage funds is quite low. But, the returns are not assured as the arbitrage opportunities are not always found. This type of mutual fund leverages the difference between derivatives and cash to generate profit. If you have surplus cash, a low-risk appetite, and want to enjoy tax deductions, you can put your money in Arbitrage Funds.
For taxes, these funds are treated as equity mutual funds. For funds sold within a year, you need to pay 30% of the tax for short-term capital gains, and 10% tax charges are applicable for long-term capital gains on arbitrage funds sold after a year.
I. Tenure – These are open-ended funds that you can maintain for 12 months to get the gain of tax available for equity funds.
II. Liquidity – Since these funds are open-ended, the liquidity is high.
III. Returns – Currently, the return rate of arbitrage mutual funds is around 6% per annum. But, the returns are not consistent or confident.
IV. Taxation – Being an equity fund, the scheme qualifies for tax advantages.
Post Office Term Deposit (POTD)
This is considered one of the most secured investment options. Post Office Term Deposits (POTD) come with tenures of 1,2,3 or 5 years and the sovereign guarantee backs the investments. The government fixes the rate of returns every quarter. The entire investment made will earn returns at the prevailing rate. Any new investment made after the announcement of the new interest rate shall earn returns at that rate.
I. Tenure – You can invest in POTD for 1, 2, 3, and 5 years.
II. Liquidity – The interests are given annually but, premature withdrawal is allowed only after 6 months.
III. Returns – The returns in this scheme are fixed. Currently, POTD has an interest rate of 6.6-7.4% for investments having a tenure of 1-5 years.
IV. Taxation – The rate of interest by such policies is added to your earning hence, it is taxed.
Fixed Deposit (FD)
Fixed Deposits are one of the traditional investment options in India. If you have a lump sum at your disposal, then you can invest that in a fixed deposit. FDs offer an attractive interest rate and are much higher than what a regular savings bank account provides. Also, the investments made in fixed deposits are considered to be highly secured.
Underneath the Deposit Insurance and Credit Score Guarantee Company (DICGC) regulations, each depositor in a financial institution is insured upto a maximum of Rs. 1 lakh for each important and hobby quantity.
I. Tenure – With bank FDs, you can make investments for 6, 9, 12 months, or more depending on the bank.
II. Liquidity – Such deposits can be renewed upon maturity and in this way, the amount can be reinvested if there is no immediate need for it. You may select options such as monthly, half-yearly, quarterly, or yearly for investment.
III. Returns – Banks currently provides an interest rate of 6.5% per annum for a tenure of 12 months or more. And increases in the case of senior citizens by 0.5%.
IV. Taxation – The interest provided on FD is eligible for tax deduction but, depends on the income and tax slab.
Recurring Deposits are suitable for those who wish to invest a small fixed sum regularly. You will receive a lump sum with interest at the tenure completion of the recurring deposit. RDs, help to slowly enter the financial discipline as you will cultivate the habit of setting aside a fixed sum regularly. This is beneficial in the long run. Like FDs, RDs too offer much higher returns than a regular savings bank account. One-year investment horizon is not quite short, and not advisable to put your funds in a savings bank account. Instead, it would help if you considered investing in this option to earn an attractive return on your investment.
I. Tenure – For fulfilling short-term goals like wanting to save money to purchase or gifting a lump sum to close ones, you can open an RD account for 1 year. You can invest a specific amount for 3, 6, or 12 months and use it after completion of tenure.
II. Liquidity – Generally, the lock-in period in RD is 1 month. However, if you want to close it within 1 month then, no interest will be paid to you.
III. Returns – Most of the time, the rate of interest is the same as the bank’s FD interest rate.
IV. Taxation – The tax is deducted on the interesting side. If you earn more than Rs. 10000, then TDS may be deducted.
Treasury bills or T-bills
These are money market instruments which the Central government issues, with having a maturity of upto a year. T-bills have 3 maturities as 91 days, 182 days, and 364 days. They are issued at a discount and redeemed at face value. Treasury bills have a zero-risk and a high degree of tradability. Treasury securities or Treasury bills are good short-term investment plans that offer high liquidity, safety, and satisfactory returns.
I. Tenure – The maturity ranges from 91 days to 1 year.
Corporate Deposits (CD)
Corporate Deposits are just like bank Fixed Deposits but, these deposits are collected by corporates for expansion. The interest rates are also slightly higher than bank FDs. For investors willing to take risks can invest in corporate deposits to earn better than bank FDs.
I. Return – Corporate Deposits can provide you with return rates of 6-8% per annum.
II. Tenure – These schemes generally do have a lock-in period of 12-36 months.
III. Taxation – The interest is added to your income and is taxed as per the prevailing income tax slab.
For high-risk takers, the best short-term investments are stock markets to invest in and earn maximum returns. If you could spot the right stocks, then invest in them for a few months to double your investment. There is a huge chance to lose your entire capital in case you bet on the wrong stocks.
I. Return – It is not particular. But, depending on the bullish or bearish market the returns could be high to very high or sometimes not at all. However, the returns are expected to be around 10%-100% depending on the stock.
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II. Tenure – There is no specific amount of time to be suggested. But, it is advisable to do research and invest in well-analyzed stocks for the long term. However, it varies from 1 month to 5 years.
III. Taxation – The returns are added to your income, and tax is calculated as per your income tax gains.
Savings Account is one of the most popular short-term investment plans in India. It is a deposit account at a bank or a financial institution wherein you can keep your extra cash and earn interest. It provides maximum liquidity as the users can withdraw their invested amount whenever they want. Moreover, there is no limit on the deposit amount, and several banks offer zero balance accounts.
I. Return – Currently, the return rate is around 3.5%-7% depending on the bank.
II. Tenure – It depends on the investors.
III. Liquidity – As these schemes don’t have any lock-in period or any fixed amount to invest hence, the liquidity is very high.
IV. Taxation – Interest from a savings account is considered as an additional income and comes under taxable income.
Factors need to consider before investing
Due to the short maturity time frame, short-term investments have low chances to provide good returns compared to long-term investments. But, some short-term instruments are less risky to invest in like Treasury bills are safer than investing in Debt Funds.
It is the main factor where short-term investments take all the praises. It provides a way to change your investment strategy from time to time. Mostly, the invested amounts are not tied up like long-term investments and investors can invest in other alternatives when needed.
Short-term investments have a key feature in common, high liquidity. For example, Treasury bills are very fluid as they can be exchanged at their market value during operational security showcase. One must consider how the fluid is the transient interest where one expects to invest. Similar liquidity can be seen on bank savings account also.
In general, the sum invested in short-term investments is much less compared to the sum invested in long-term investments. This allows the investor to save some amount of their money and invest in other investment options which helps to expand the investor’s portfolio.
Under Short Term Capitan Gains Tax(STCG), the profits from the short-term investments are duly taxable. In any case, the rate levied at the STCG might easily vary from product to product. So, the Tax efficiency of the investment alternative is another prime factor that should be considered while choosing the best investment plans.
Final Tips To Best Investment Plan For 1 Year
Short-term investments are the best option to accomplish your short-term financial goals. With short-term investments, you can ensure financial freedom that will help manage unexpected expenses. In addition, it offers you the flexibility to withdraw money whenever required without waiting for a long time.
Mostly, you can make profits within a short period as short-term investment plans provide stability, liquidity, and low transaction costs. There are many long-term investment plans in India available for investments you can choose from according to your plans. The list mentioned above should have given you an overview of the Best Investment Plan For 1 Year options available in India.
So, whichever you choose to put your hard-earned money, make sure to have a clear objective and stick until the end. Do the money work for you, even when you are sleeping.