10 Best Investment Plan for 1 Year in India 2020

Updated on 3 Feb 2020.

The investment plans for 1 year are best to earn higher interest as compared to a bank savings account. In this article, we have listed the best investment options for 1 year in India 2020.

Also Read- 11 Best Investment Plans in India

10 Best Investment Plan for 1 Year in India

#1. Bank Fixed Deposits (FDs)

Bank FDs are the most common and safest choice to invest. A fixed deposit offers you to earn more interest as compared to your savings account. The interest rate varies on the basis of tenure of FD and bank as well.

Lakshmi Vilas Bank provides a high-interest rate of 7.50% on FD for 365 days or above.

You can also read my article to know the best fixed deposits rates in India.

Pros
  • Secured returns.
  • Easy liquidity at the time of needs
  • FDs can be open online through net banking.
Cons
  • TDS will be deducted for interest earned above Rs 40,000.

Under DICGC rules, each depositor in a bank is insured up to Rs 1 lakh for principal and interest both.

#2. Post Office Time Deposits

Post Office Time Deposits are also a good choice for you to opt for short term investment.
For one-year TD interest rate is 6.9%. Again you get better  returns than savings account where interest rate would be 3-4%.

Pros
  • Returns are fixed and assured with a sovereign guarantee.
  • Easy to open as penetration of post office is more than banks.
Cons
  • Interest is payable annually but calculated quarterly.
  • Premature withdrawal not allowed. After 6 months withdrawal allowed with a reduced rate of interest.
  • The interest earned is added to one’s income and taxed as per slab.

#3. Fixed Maturity Plan (FMP)

Fixed maturity plans are close-ended debt mutual funds which have maturity term of 30 days to 5 years. But you can also invest your money for 30 days, 180 days or 365 days.

The duration of debt is aligned with the tenure of the scheme.

FMP invests in debt insturments like debentures, Certificate of deposits, Commercial papers, money market, govt. or corporate bonds, and bank FDs.

Since, Debt instruments are mostly govt. backed schemes or issued by large companies, market risk is lower as compared to equities but they give better returns than FDs.

Pros
  • FMP offers indexation benefits. Indexation helps to lower capital gains thus the tax is lowered.
  • Returns marginally higher than bank FDs.
Cons
  • Low liquidity. Invest in them when you are sure to hold for the lock-in period.
  • Taxation is similar to debt funds. Gains made under 36 months of holding it is added to one’s income & taxed.

After 36 months gains are taxed at 20% post-indexation.

Also Read – 10 best debt mutual funds in India.

#4. Liquid Funds

Liquid funds are simply debt mutual funds that invest money in treasury bills, govt securities, and call money. These are open-ended in nature that is offered through a fund company that sells directly to the investor.

You can use a Systematic Investment Plan (SIP) to invest money in Liquid Funds, this gives more flexibility to liquid funds.

These funds invest in instruments up to a maturity of 91 days.

Pros
  • Returns are slightly higher than the savings account.
  • Least volatile among all other debt mutual funds.
  • High liquidity. Redeemable within 1-2 days. ICIC Prudential gives instant while Reliance MF provides a debit card.
Cons
  • Before maturity incurs exit load on the fund.
  • Risk is more compared to a savings account, bank FDs.
  • Taxation is similar to debt funds. Gains made under 36 months of holding it is added to one’s income & taxed. After 36 months gains are taxed at 20% post-indexation.

#5. Ultra Short Term Debt Funds

Ultra short-term funds invest in fixed income instruments which are mostly liquid. Unlike liquid funds maturity period is higher than 91 days that ranges from a week to 18 months.

You should invest in Ultra S-T Funds if you want to invest between 6 months to 1 year. You can expect a return between 6-9 percent.

Pros
  • Can be a substitute for bank FD of 90-120 days.
  • Higher yields compared to short term bonds and money market.
  • Changes in interest rate do not affect the value of the fund.
Cons
  • High expenses ratio.
  • Credit and default risk are associated.
  • Taxation is similar to debt funds. Gains made under 36 months of holding it is added to one’s income & taxed. After 36 months gains are taxed at 20% post-indexation.

#6. Arbitrage Mutual Funds

Arbitrage is a type of equity fund which buys a security from one market and sells in other markets. In simple words, the fund manager buys shares from the cash stock market and sells it in the futures or derivatives markets.

You earn, the difference in the cost price and the selling price, as a return.  Means, the price difference from buying and selling is your profit.

For example,

Assume that a company XYZ trades in the cash market at Rs.1,000 and in the future market at Rs.1,020. The fund manager buys XYZ shares from the cash market at Rs.1,000 and initiates a futures contract to sell the shares at Rs.1,020. In the end of the month, when the prices are matching, the fund manager will sell the shares in the futures market and gets a risk-free profit of Rs.20 per share.

Pros
  • Less risky and offer returns up to 7%.
  • Taxed as equity fund hence more tax efficient when invested for at least 12 months
  • Open-ended funds
  • High liquidity.
Cons
  • High expenses ratio.
  • The payoff is unpredictable. Not very profitable during stable markets.

#7. Recurring Deposit

RDs are a good option if investing for less than a year.

Deposit at regular intervals for a fixed period like 6,9 & 12 months. The interest rate is the same as for fixed deposits.

It is ideal for salaried people or who want to start the habit of regular investing without taking any risk.

Pros
  • Secured returns.
  • Easy liquidity at the time of needs
  • RDs can be open online through net banking.
Cons
  • The interest earned is added to one’s income and taxed as per slab.
  • Premature withdrawal with reduced interest.

#8. Savings Account

The safest way to park your money and withdraw at the time of needs.

A savings account gives an interest rate of 3.5% to 7% varies from bank to bank.

DBS bank provides an interest rate of 7% for the amount of Rs 1-2 lakhs.

Pros
  • Secured returns.
  • Withdraw any time with ATM card.
  • Some banks provide online account opening.
Cons
  • Interest earned above Rs 10,000 is liable to tax and TDS will be deducted.
  • Interest rate is less compared to other investing options.

#9. Real Estate

Real estate can also be a good option if you have huge capital. You must know the area, location of property and infrastructure developments in nearby areas before investing in real estate.

It’s not easy to sell the property quickly in case of urgency, but you can also opt for rental income from your property.

The average return from a real estate investment is around 11% per year.

Pros
  • Open Plot investment gives good return if sold within a year.
  • Return higher than bank FDs, savings.
Cons
  • Tax is applicable on STCG.
  • Huge capital requirement.
  • Highly illiquid.
  • Regulatory risk, Legal risk is associated with real estate.

#10. Fixed Deposits in Small Finance Banks

Small Finance banks are new players in the market and provide better-fixed deposit interest rates than large commercial banks. You can get returns around 8%-9%.

Pros
  • Deposit rates up to 8% provided by Fincare SFB or Jana SFB which is more than big commercial banks.
  • For a senior citizen, interest goes up to 9.5%
Cons
  • TDS is applicable on the interest earned.
  • SFB branches are not so widespread.

Conclusion

Invest according to your requirements and risk appetite.

If you won’t want to take the risk in any condition it is safe to invest in bank FDs, post office time deposit, savings account. If you can take the risk then you can invest in liquid funds, ultra short term debt funds.

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