Updated on 3 Feb 2021.
Best investment plan for 3 years requires 2 features –
- Shorter investment period
In this article, you will know about the best investment options for 3 years in India 2021.
Also read – Best investment plans for 1 year in India
10 Best Investment Plan for 3 Years in India
#1. Monthly Income SIP
You might get the name wrong. MIP does not generate monthly income as the name suggests. The monthly income plan belongs to the hybrid mutual fund category and is a debt-based fund. Like all other mutual funds, dividends are paid out according to profit.
There is no lock-in tenure for this scheme. Exit charges also cost as low as 1% making MIP a flexible investment.
There are two options for MIP investment- Growth, and Dividend.
Any profit generated in this case is reinvested by the fund manager to grow its portfolio.
MIP is capable of paying out the surplus in the form of monthly, quarterly, annual or biannual payouts.
Dividend further has two subtypes – Dividend Payout and Dividend Reinvest.
In Dividend payout, the investor receives payout directly to his registered bank account.
In Dividend reinvests, on the other hand, the investor receives an additional unit of equivalent value to the dividend provided. These extra units provide capital gains to the investor when redeemed.
Returns from MIP are taxable under the rules of Short Term Capital Gain (STCG) Tax if an investment is disposed of within 3 years and Long Term Capital Gain (LTCG) Tax if is more than 3 years.
|MIP Name||1 year
|ICICI Prudential Regular Savings Fund||10.89%||9.31%|
|Kotak Debt Hybrid Fund||12.8%||7.62%|
|IDFC Regular Savings Fund||9.23%||6.79%|
|SBI Multi-Asset Allocation Fund||11.51%||8.01%|
|BNP Paribas Conservative Hybrid Fund||10.63%||8.68%|
|Franklin India Debt Hybrid Fund||10.1%||6.91%|
#2. Short Term Debt Mutual Funds
Short term debt mutual funds that invest in government certificates, corporate debt securities. There are mutual funds duration varying from 90 days to 3 years.
Longer tenure funds tend to protect investors against fluctuating interest rates.
Interest rates on these funds are fluctuated according to market volatility. Some of the short term funds return rate ranges from 8% to 9% based on the assets in the fund.
|SBI Magnum Constant Maturity Fund||12.42%||9.19%|
|HDFC Short Term Debt||9.90%||7.72%|
|Kotak Bond Short-term Fund||9.82%||8.88%|
|Nippon India Prime Debt Fund||7.97%||7.15%|
|ICICI Prudential Short term fund||9.75%||7.06%|
Also Read – How to invest in Mutual Funds
#3. Recurring Deposits
Recurring deposits help in develop a regular saving habit for the long term that generates high returns. It is a good saving option for people having a regular source of income.
You can choose the tenure and monthly installment amount of the RD. Recurring deposits are more liquid than fixed deposits. You also don’t need a lump sum amount to start savings as in the case of FD.
The minimum period of deposit is 6 months and the maximum is 10 years. The minimum deposit can vary from bank to bank. Minimum deposit starts from Rs. 10. Interests are compounded quarterly.
Premature withdrawals are not allowed. However, you can close RD before maturity with a penalty. RD deposits can be periodically funded automatically from your savings account by standing instruction.
You can take loans against the deposit. Banks usually give 80-90% of the deposit as a loan amount.
Interest for a loan against RD is 1-2% more than the interest you earn on your savings account. There is no tax benefit on returns from recurring deposits. The money invested and interest gained are taxable.
You can open RD either in the post office or at the bank. Interest rates vary from bank to bank. Here are the interest rates provided by popular banks
|HDFC Bank||6 months to 10 years||4.40% – 5.50%|
|SBI bank||1 year to 10 years||4.40% – 5.40%|
|Yes Bank||6 months to 10 years||5.50% – 6.75%|
|Axis bank||6 months to 10 years||4.40% – 6.50%|
|Punjab National Bank||6 months to 10 years||5.50% – 5.60%|
|ICICI Bank||6 months to 10 years||3.50% – 5.35%|
|Canara Bank||6 months to 10 years||5.50% – 5.80%|
|IDFC First bank||6 months to 10 years||4.50% – 5.75%|
|Bank of India||6 months to 10 years||4.75% – 5.30%|
Also Read – 10 High paying Corporate Fixed Deposits in India.
#4. Gold Investment
Gold investment is a risk-free investment that may beat inflation in the long term. It is also a very liquid investment that gives decent returns.
To invest in gold you have multiple ways to go about it.
- Buying Gold
- Gold Funds
- Gold ETFs(Exchange Traded Funds)
Buying gold is a traditional way of investing in gold. Nowadays, advanced investments like Gold Funds and Gold ETFs enable investors to invest in gold without having to buy gold physically.
Gold Funds are investments made in companies involved in gold mining. Gold Funds involve a minimum expense ratio ranging from 0.5-0.75%.
Below are some top-performing gold funds and returns on a yearly basis.
|Fund Name||1 year||3 year||5 year|
|Aditya Birla Sun Life Gold Fund||25.02%||10.77%||6.82%|
|SBI Gold Fund||22.52%||10.79%||6.58%|
|Kotak Gold Growth Fund||23.14%||11.68%||6.52%|
|ICICI Prudential Regular Gold Savings Fund||20.99%||9.78%||6.61%|
|HDFC Gold Fund||21.27%||10.18%||6.36%|
Gold ETFs require a Demat account. You will buy a proportionate amount of gold but not in physical form. Changes in gold rates affect gold ETFs.
This investment also has asset management and brokerage fees that range between 0.5 to 0.75%.
You may like to read about Sovereign Gold Bonds in India.
#5. Fixed Maturity Plans
Fixed Maturity Plans are debt funds that have a maturity period ranging from 1 month to 5 years.
FMPs are free from market fluctuations as they are focused on generating steady returns over a fixed period of time.
FMPs are closed-end funds meaning that they can only be traded on the stock exchange when they are listed. This makes FMP not liquid as other investment schemes.
FMPs invest in fixed income instruments like certificates of deposits, fixed deposits, and other commercial papers that mature around the same time.
This makes it easier for the investor to have an indication of the returns to expect.
FMP provides more tax benefits post maturity as compared to Fixed Deposits. Along with capital protection, your investment will be free of interest rate volatility.
FMP schemes keep on changing from time to time, so go through the details of the latest schemes before investing.
|Aditya Birla Sun Life Fixed Term Plan Series PT – Regular Plan||1100 Days|
|Kotak FMP Series 226 – Regular Plan||1470 Days|
|Nippon Fixed Horizon Fund XXXVII – Series 5 – Regular Plan||1105 Days|
|UTI Fixed Term Income Fund – Series XXIX – III Regular Plan||1131 Days|
|Invesco India Fixed Maturity Plan Series 31 – Plan C – Regular Plan||1106 Days|
#6. Post Office Time Deposit
Post office time deposit (POTD) is one of the well-known investment schemes offered by India Post. POTD provide assured returns on maturity.
Along with Post Office, POTD can be opened at all public sector banks as well as private sector banks like Axis bank, HDFC bank.
Time Deposit accounts can either be individual or jointly held.
POTD has four tenure options. 1, 2, 3 and 5-year deposits. Minimum deposit has to be of Rs. 200. Amount in the account also should be in multiples of Rs 200.
Tenure of POTD can be extended on maturity providing flexibility in investment periods. 5-year time deposits qualify for tax deduction under 80C. Premature withdrawal is also allowed.
Below are the interest rate according to the tenure period
Interest rates are revised quarterly by the Finance Ministry.
#7. Equity Linked Savings Scheme(ELSS)
An equity-linked scheme (ELSS) is an equity mutual fund that invests 80% of the total amount in equity.
ELSS has a lock-in period of 3 years. It qualifies for a tax exemption up to Rs 1,50,000 under section 80C. however, ELSS are subjected to long term capital gains tax. But gains up to 1 lakh per year is exempted.
Since ELSS invests in market-linked instruments, it generates the highest returns than other savings plan. ELSS can earn returns between 15% – 18%.
Equity Linked Saving Scheme offers high liquidity as you can withdraw your money anytime. With high returns and partial tax savings higher than other saving plans, ELSS is a good investment for those who don’t mind a little bit of risk on their investment.
Below are the top performing ELSS
|ELSS Name||3 year
|SBI Magnum Taxgain Scheme||7.71%||4.92%|
|Mirae Asset Tax Saver Fund||15.93%||—|
|Aditya Birla Sun Life Tax Relief 96||11.50%||8.50%|
|Kotak Tax Saver||12.08%||8.68%|
|DSP BlackRock Tax Saver Fund||10.86%||11.07%|
|ICICI Prudential Long Term Equity Fund||9.58%||7.16%|
|Axis Long Term Equity Fund||16.44%||10.55%|
|Invesco India Tax Plan||13.55%||10.92%|
|Canara Robeco Equity Tax Saver Fund||12.82%||8.62%|
|Motilal Oswal Long Term Equity Fund||15.74%||14.98%|
Also Read – Best Performing ELSS Funds in India.
#8. National Savings Certificate
National Savings Certificate is another low-risk investment option offered by India Post. NSC is a savings bond with investment starting as low as Rs. 100. There is no maximum limit to invest.
NSC is a very flexible investment plan as its bonds are issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10,000 and has a tenure of 5 or 10 years to choose from.
You can claim tax exemption up to Rs. 1,50,000 under section 80C for investment in NSC. But the interest earned on maturity is taxable. Interest is compounded annually.
The current rate of interest on NSC is 6.8%. Interest rates from the last financial years are as follows
|Q1 (Apr-June) of 2019-20||8.0%|
|Q2 (July-Sep) of 2019-20||7.9%|
|Q3 (Oct-Dec) of 2019-20||7.9%|
|Q4 (Jan-Mar) of 2019-20||7.9%|
|Q1 (Apr-June) of 2020-21||6.8%|
|Q2 (July-Sep) of 2020-21||6.8%|
|Q3 (Oct-Dec) of 2020-21||6.8%|
#9. National Pension Scheme
The National Pension Scheme is a savings scheme offered by the Central Government under the Pension Fund Regulatory and Development Authority(PFRDA).
This scheme is gaining in popularity because of security and rate of returns.
NPS requires regular investment during investors employment up to the age of 60. Then subscriber can take out 60% of the invested money while the other 40% is used to fund a pension.
Upto Rs. 1,50,000 tax exemption can be claimed for investment in NPS. Even though NPS is a long term savings plan, if you are investing for 3 years or more, you can withdraw up to 25% of the investment for your emergency needs.
You can take out money up to 3 times(with 5 years gap between each withdrawal) in the entire tenure of the scheme.
The interest rate for NPS is not set as a definite amount. It varies between 12-14% which is more than the interest rates offered by other savings schemes. Currently it is 12%.
E scheme of the NPS invests in equity. You can choose how much of your investment can be invested in equity. maximum is 50%. NPS offers investors two options to invest in – Active choice and Auto choice.
Active choice allows you to decide the scheme and split your investments in various funds.
Auto choice, on the other hand, decides the risk profile of your investments according to your age. The younger you are, riskier are your investments and higher can be the returns.
#10. Treasury bills
Unlike other government bonds, treasury bills have a shorter maturity period – 91 days, 182 days, and 364 days.
Treasury bills are used by the government to raise funds. The Reserve Bank of India auctions treasury bills at regular intervals for a discounted value than their face value.
For example, a Rs. 100 face value is sold at say Rs. 97.
Treasury bills are highly liquid negotiable instruments. The minimum amount of bid is Rs. 25000 and multiples of it. Treasury bills are short-term in nature and help set aside money without market risks.
Online brokerage platform Zerodha is selling Treasury Bills and Government Securities. You need to open an account in Zerodha. Then you choose from various treasury bills offered by the government.
Invest as per your risk appetite and investment horizon. For long-term investments, you can go for equity realted investements but debt or hybrid are the best investments for a 3 years tenure.
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