Which is the best investment plan in India for 1 year?

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Short Answer

The best investment plans in India for a year are to invest in fixed deposits, short-term funds, and ultra-short-term funds. These are less risky and produce relatively higher returns than banks.

Detailed Answer

Investment, in essence, is an asset made with the intention of enabling financial growth. Most of the time, people invest for long periods of time to give their money more time to grow. However, there are many situations where people want to make investments for only one year.

For instance, when someone has saved money for a wedding that is scheduled for one year from now. In these cases, rather than just holding onto the money, they invest so that it can grow and will be accessible after one year. So, today we'll look at some of the best one-year investment plans in India.

Best Investment Plan in India for 1 year?

Here are few popular short term investment plans you can consider:

1. Fixed Deposit (FD)

A fixed deposit (FD ) is an investment instrument that banks and non-banking financial companies (NBFC) offer their customers. Through an FD, individuals invest a specific amount of money for a specific amount of time at a specific rate of interest.

  • Maturity Period: 7 days to 10 years
  • Return : 6% to 7 %
  • Risk : Almost risk-free
  • Taxation : FD interest income gets taxed as per your income slab rates.
  • FD Advantages :The rate of return on a fixed deposit is fixed, and after a set period, you will receive your principal amount plus interest.
  • FD Disdvantages : FD has a maturity date, if you will withdraw before the maturity date then a penalty of generally 1% is levied on applicable interest.

2. Liquid Funds

Liquid funds are debt funds that invest in short-term assets like commercial paper, government securities, and treasury bills.

  • Maturity Period : up to 91 days
  • Return : 7% to 9% (conditions applied)
  • Risk : Higher
  • Taxation : IF you hold liquid funds for more than 3 years, then they are taxed at 20% after indexing, and for less than 3 years, they are taxed as per your income slab rates
  • Liquid Funds Advantages : There is no exit load in liquid funds. After 7 days, you can withdraw anytime without any penalty.
  • Liquid Funds Disdvantages : There is no guarantee of returns, and due to market fluctuations, even the invested capital could experience a loss.

3. Ultra Short Term Mutual Funds

Ultra Short-Duration funds are fixed-income mutual fund schemes that invest in debt as well as money market securities. The portfolio duration for ultra-short funds ranges from three to six months.

  • Maturity Period : 15 - 91 days
  • Return : 4% to 5%
  • Risk : Lower Risk
  • Advantages : Compared to short-term bonds and money market accounts, ultra-short-term funds may offer higher yields, and investors are better protected from interest rate risk.
  • Disdvantages : High annual expense ratios, i.e., the annual fee that mutual fund managers typically charge for their services, range from 0.36 to 0.80% expense ratio.

4. Arbitrage Mutual Funds

Arbitrage funds are hybrid mutual fund strategies that seek to make arbitrage profits by taking advantage of price discrepancies between the same underlying assets in various capital market segments.

-Maturity Period: Up to 1 year

  • Return : 3% to 5%
  • Risk : Lower Risk
  • Taxation : Arbitrage funds are taxed as equity funds.
  • Advantages : Arbitrage funds are known to have low risk and can thrive even in an unstable market.
  • Disdvantages :  Since these funds are traded frequently, they also attract a substantial transaction cost as there is an exit load for 30-60 days

Best Short Term Investment Options in India

Higher returns always come with greater risk, so if you're investing for the short term, be sure to consider the exit load and other risks associated with the investment. After that, you can choose whichever short term investment option best fits you.

Tagged With: investmentshort term investmentfixed depositsmutual fundsarbitrage fundsinvesting
Categories: Investment
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