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Best One Year Investment Plans
Table of Content
Debt Funds
Debt funds, a good source of fixed income with capital appreciation, are low-risk mutual funds. Though they are market-linked funds, the risk associated is much lower. Debt funds are a good option for a 1 year investment plan.
Liquidity
Easy access to funds is the plus point of investments in debt funds. You have the provision to redeem the units within one or two working days of placing a request. They do not have a lock-in period like fixed deposits or recurring deposits. The performance of the funds and market conditions are the detrimental factors for returns.. With higher liquidity, debt funds are the best investment option to accomplish short-term financial goals.
Returns
The interest rate for one-year investments like debt mutual funds is around 7% per annum. The returns are much lesser compared to equity funds but consistent. The asset quality and the interest changes influence the yield.
Taxes*
Debt funds are considered the best short term investment plans for 1 year. However, you should understand the tax implications on the asset before investing. The profit earned on the investment within 36 months will be added to your income and taxed as per the applicable slab. However, the returns for over 36 months are considered long-term capital gains and are taxed at 20% after indexation.
However, the indexation rules do not apply for assets purchased after 1.4.2024, and the capital gains will be added to the income and taxed as per the relevant income tax slab.
Fixed Maturity Plans
This is the best investment plan for 1 year for those who can afford to lock in the funds. These plans are for a fixed duration and provide a fixed income.
Investment Duration
The duration of fixed maturity plans is defined at the time of investing in the plan. It ranges from 1 month to 5 years. The tenure can be selected depending on the time horizon set for short-term goals. With the flexibility available to suit every short-term goal, a fixed maturity plan is the best one year investment plan.
Liquidity
The liquidity in this 1 year investment plan is low as the funds cannot be withdrawn before maturity. With flexible tenure options ranging from 1 month to 5 years, you can choose the plan as per the time horizon of your short-term goal.
Returns
Fixed maturity plans invest funds in fixed-income assets like bonds or certificates wherein the interest rate is decided at the time of purchase and remains till maturity. The returns are fixed and not exposed to market fluctuations. FMPs are safe short term investments for investors seeking fixed income with capital protection.
Taxes*
Indexation benefit is provided for investments made before 1.4.2024, wherein 20% of the tax after indexation will be applied to assets over 36 months. Post 1.4.2024, all the profit earned will be added to the income and taxed at the relevant income slab rate.
Arbitrage Mutual Funds
Arbitrage mutual funds are open-ended funds that consistently buy and sell in different market segments to benefit from varying prices for better yield. For instance, you can buy the unit in a market where the price is low and at the same time sell it in a market where the price is high to lock in profits.
Investment Duration
Retaining the investment for 12 months is recommended for better gains. These funds being open-ended involve some amount of risk. This, among the short term investment plans for one year, is suitable for investors with medium to high risk profiles seeking quick profits.
Liquidity
The Arbitrage Mutual Fund offers high liquidity as the units have to be bought and sold frequently. It is considered the best investment plan for 1 year as there is easy access to money in case of need.
Returns
The returns are not consistent in this investment option. However, it is expected to provide an approximate return of 6%.
Taxes*
The tax benefits are better in Arbitrage Mutual Funds as compared to debt funds. Exemption of up to Rs. 1.00 lakh is given to long-term capital gains. Tax is collected at 10% after indexation for returns exceeding Rs. 1.00 lakh. Investors in higher tax brackets consider this as the best investment plan for 1 year.
Fixed Deposit
Bank fixed deposit is a preferred option for capital appreciation in short term investments. The rate of interest is predetermined and remains unaltered till maturity. It is a safe one time investment plan that provides fixed returns with capital protection.
Investment Duration
The fixed deposit tenure is from 7 days to 10 years. With the option to reinvest on maturity, you can choose the timeline according to your short-term goals and renew the deposit if the funds are not used for the purpose.
Liquidity
With a provision for partial and premature withdrawal, fixed deposits are highly liquid. However, such withdrawals attract penalties as per the guidelines of respective banks.
Returns
The interest rates on fixed deposits depend on the tenure. However, the approximate return for a 12-month investment is 6.5% p.a., with an additional 0.50% for senior citizens. You can opt for monthly, quarterly, half-yearly, or yearly interest payouts.
Taxes*
The interest earned is liable for tax deduction at source. The tax is deducted at 10% with PAN and 20% in the absence of PAN. If the interest on deposits exceeds Rs. 40000/- in a financial year, tax is deducted at the source.
Recurring Deposits
A recurring deposit is the best investment plan to inculcate a disciplined saving habit. It requires investing a fixed amount at regular intervals for a specific period. The period is decided at the time of opening the account.
Investment Duration
You can open an RD for a duration between 3 months to 10 years. This deposit is an arrangement that makes lump sum payments to be made at a future date affordable. For instance, if you have a yearly premium payment of Rs. 12000/-, you can open an RD for Rs. 1000/- for 12 months with a maturity date coinciding with the premium due date.
Liquidity
Generally, the lock-in period for recurring deposits is 1 month. If you wish to close the deposit within 1 month, you can do so but will have to forego the interest.
Returns
The interest rates will be similar to that of fixed deposits and depend on the tenure. The interest will be paid on maturity, unlike fixed deposits, where you can opt for monthly, quarterly, half-yearly, or yearly interest payouts.
Taxes*
The interest earned on recurring deposits is liable for tax deduction at source at 10% if it exceeds Rs. 10000/- in a financial year.
Post Office Term Deposits
The post office term deposit with a tenure ranging from 1 year to 5 years is considered the best investment plan for 1 year that provides fixed returns with capital appreciation.
Investment Duration
The duration of the term deposit is between 1 year to 5 years, making it one of the most convenient short term investment plans for 1 year. For short-term goals like planning a trip or paying your child’s annual school fees and so on, you can invest in the deposit for 1 year.
Liquidity
The lock-in period for Post Office Term Deposits is 6 months. You are allowed to prematurely close the deposit after 6 months with a penalty. With access to funds in emergencies, this is a highly cash-liquid investment option.
Returns
The interest on the deposit is calculated quarterly and paid annually. The existing interest rate is 6.6% to 7.4% p.a depending on the tenure.
Taxes*
The investment made in post office term deposits for 5 years is eligible for deduction under Section 80C* up to a maximum limit of Rs. 1.50 lakhs. However, the interest earned on the deposits is taxed at source at 10% with PAN and 20% without PAN. This deposit is not a preferred option for investors looking for tax benefits on short term investments.
Factors to Consider Before Investing in an Investment Plan for 1 Year
For a judicious investment in the best investment plan for 1 year consider the following factors:
Financial Goals
Setting financial goals will give you clarity and direct you towards the right plans. The goal-setting process may seem overwhelming, but it is worthwhile considering the rewards. List the goals in order of priority and choose the right plans to achieve each one of them.
Risk Tolerance
Risk tolerance plays a key role in the investment journey. If you are ready to invest more for high returns while maintaining your financial stability, then you have a high-risk tolerance. If capital protection is your priority, then it is best to go for investments with guaranteed returns and capital protection, like fixed deposits. However, with a diverse portfolio, you can balance the risk and minimise the losses.
Diversification
Diversification is pivotal to reducing the investment risk. Spreading your investments across diverse assets with different risk levels brings in a balance and minimises the losses. Investment plans like mutual funds or Exchange Traded Funds that allow investments across various assets so that loss from a poorly performing asset can be balanced with the returns from an asset performing well are better options. Also, diversification allows you to change your portfolio based on market trends.
Liquidity Needs
Liquidity is another key factor to be considered while preparing an investment charter. If funds are not easily accessible in times of emergency, the purpose of investment for financial security is not served. Being able to withdraw the funds in critical situations should be the primary concern when choosing a short term investment plan.
Current Financial Situation
Assess your current financial situation to evaluate your investment ability for one year. You then look for investment options that align with your risk tolerance and provide good returns with capital protection.
Asset Allocation
Asset allocation, to a large extent, depends on your goals, risk tolerance, and time horizon. A diverse portfolio with the right mix of assets like fixed deposits, stocks, bonds, etc., will minimise the risk and optimise returns. Reviewing your portfolio and making changes according to changed goals and market conditions will maximise the returns.
Market Conditions
The return on your investments depends on the condition of the stock market. When the stock market is bullish, investing in equity rather than low-risk instruments is a good move. Focus on low-risk investments like bonds or fixed deposits when the stock market is down.
How to Choose the Best One-Year Investment Plan?
Assessing your financial goals should be the starter to choose the best investment plan for 1 year. Your risk tolerance level should be the yardstick for choosing the best plan. If you are looking for guaranteed and stable returns, opt for fixed deposits, money market accounts, short-term debt mutual funds, etc. If you are game for higher risks to attain better returns, arbitrage funds, equity-linked saving schemes, etc., are the best bet.
Compare the liquidity level, interest rates, and tax implications of every option before shortlisting the best ones. The best plan will comply with the factors, i.e., safety, tax efficiency, and probable returns.
Conclusion
Investment planning for meeting short-term goals requires a lot of introspection in terms of returns, liquidity, tax implications, and diversity. It also depends on your risk tolerance level and market conditions. With so many short-term investment plans available, choosing the best investment plan for 1 year is not a tedious task if you are clear about your specific needs. While focusing on short-term gains, it's equally important to consider life insurance plans that provide long-term financial security and protection against unforeseen circumstances. Do thorough market research, consider all the factors mentioned in this article, and set out to make investment plans.
FAQs on Best Investment Plan For 1 Year
Q. Which is the best investment for 1 year?
The best investment for 1 year depends on the duration, returns, liquidity, and tax implication. Some of the popular plans are Debt Mutual Funds, Fixed Deposits, Recurring Deposits, Post Office Term Deposits, and Arbitrage Mutual Funds
Q. Which investment is best for high returns?
Equity or equity-adjusted instruments like stocks and bonds are best for high returns. However, the risk associated is much higher when compared to investment tools like fixed deposits. If capital appreciation is the intention, then real estate is a good option.
Q. What are the 7 types of investments?
The 7 types of investments are mutual funds, stocks, retirement plans, bonds, fixed deposits, money market funds, real estate, and insurance plans.
Q. How to do growth investing?
Growth investing begins with goal setting. You then check the relevant financial documents, understand your current financial situation, build an emergency fund, create a budget, invest for the future, and review and readjust your portfolio to suit the changing goals and market conditions.
Q. What are the 5 steps to start investing?
The 5 steps to start investing are setting financial goals, understanding the current financial situation, allocating assets, creating an investment strategy, and reviewing and adjusting the portfolio.
Related Articles:
What is Investment? – Meaning, objectives, types and benefits of investment
10 Best Types of Investments in India 2024
13 Best Low-Risk Investments In India 2024
Low Risk vs. High Risk Investments? Know which to Choose
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Francis Rodrigues
Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.
Written By:
Vishal Subharwal
Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.
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HDFC Life
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This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial consultant for any financial matters.
* Tax benefits & exemptions are subject to conditions of the Income Tax Act, 1961 and its provisions. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.
18. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.
** The past 5 year fund performance of HDFC Life Discovery Fund (SFIN: ULIF06618/01/18DiscvryFnd101) as on 30th November 2024. The benchmark taken into consideration here is is Nifty Mid Cap 100 which as a return of 26.77% as on 30th November 2024. HDFC Life Discovery Fund is available with HDFC Life ULIPs which comes with a life cover. Please note past fund performance is not indicative of future performance.
ARN - MC/11/24/18658
