Best Investment Plan for 5 Years: List of Fixed & Market-Linked Options

A 5-year investment horizon generally works well for medium-term financial goals. It gives your money enough time to grow without locking it away for too long.

Fixed deposits are often the first choice in this category. They currently offer returns of up to 7.90% per annum and provide a steady income with low risk. However, depending only on one option may limit your returns. Investing in more options can help you balance risk and growth. 

Explore a list of the best investment plans for 5 years in this blog and choose what fits your goals best.

Key Highlights

• Options like FDs, RDs and NSC suit 5-year goals where capital safety matters more. 
• Market-linked options offer higher return potential but require tolerance. 
• A diversified mix of fixed-income and market-linked options is advisable for 5 years. 

List of 6 Best Investment Plan for 5 Years in India 

While choosing the best investment plan for 5 years, you can opt for options that either offer fixed or market-linked returns, depending on your risk comfort and financial goals.

Fixed-Income Investment Options

These investment options remain unaffected by market movements and help preserve capital while earning a steady income. If safety is your priority over aggressive growth, these options can work well for a 5-year investment horizon: 

Tax-Saving Fixed Deposits 

Tax-saver fixed deposits offer a predetermined interest rate for the chosen tenure, which makes your returns predictable. In addition, it helps you avail tax deductions of up to ₹1.5 lakh per financial year under Section 80C of the Income Tax Act, 1961. 

However, it is important to note that tax-saving fixed deposits come with certain restrictions. They do not allow premature withdrawal and have a fixed lock-in period, which means you cannot choose a flexible or variable tenure.

• Returns: Up to 7.90% per annum 
• Lock-in Period: 5 years

Recurring Deposit

If you want to invest a fixed amount every month, you can choose a recurring deposit for 5 years. Similar to FD, it offers a predetermined interest rate for the entire tenure.

Additionally, when you invest in a recurring deposit with Stable Money–partnered banks, you can top up your investment at any time after booking while continuing to enjoy the same interest rate. This allows you to lock in competitive rates even if interest rates change later.

• Returns: Up to 7.90% per annum 
• Lock-in Period: No lock-in period

National Savings Certificate 

National Savings Certificate (NSC) is a government-backed fixed-income investment option. The predetermined interest is compounded annually and paid at maturity. 

You can easily invest in it via any Indian Post Office for a fixed maturity period. In addition to assured returns, NSC also helps you claim tax deductions of up to ₹1.5 lakh per financial year under Section 80C.

• Returns: 7.7% 
• Lock-in Period: 5 years

Market-Linked Investment Options 

Market-linked investment options are suitable if you are willing to take some risk in exchange for potentially higher returns over a 5-year horizon. However, returns may vary based on market performance.

Mutual Funds 

Mutual funds are professionally managed investment options that pool money from multiple investors to invest in a diversified portfolio of assets. If you want a market-linked investment plan, you can opt for mutual funds based on your risk appetite, such as equity, debt or hybrid funds. 

You can also explore thematic or sectoral funds to potentially earn higher returns. You can invest all at once in a single payment or in smaller, regular monthly amounts through SIP.

• Returns: 12%-40% (average range) 
• Lock-in Period: 3 to 7 years (in case of close-ended mutual funds) 

Unit-Linked Insurance Plan 

A ULIP (Unit Linked Insurance Plan) is a unique investment option that combines life insurance with market-linked growth. By paying a premium, you get insurance cover while a portion of your money is invested in equity, debt or hybrid funds. 

With a ULIP plan, you can avail tax deductions under Section 80C of the Income Tax Act, 1961, of up to ₹1.5 lakh on the premium paid. 

The maturity proceeds are tax-exempt under Section 10(10D) if the premium is less than 10% of the sum assured. However, for ULIPs issued from 1st February 2021, if the aggregate premium exceeds ₹2.5 lakh in a financial year, the maturity amount is subject to capital gains tax.

• Returns: 8% to 12% (average range) 
• Lock-in Period: 5 years

Equity Linked Saving Scheme

Equity Linked Saving Scheme (ELSS) is a type of mutual fund that primarily invests in equities. At least 80% of its portfolio is allocated to equity or equity-linked instruments, while the remaining portion may go into debt. ELSS investments made in a financial year qualify for tax deductions of up to ₹1.5 lakh under Section 80C. 

• Returns: 12% to 20% (average range) 
• Lock-in Period: 3 years

How to Choose the Best Investment Plan for 5 Years?

To invest in the best investment plan for 5 years, first know your financial goals and how much risk you can take. You can go for safe fixed-income options or try market-linked plans.

Generally, it is best to have a diversified portfolio. A mix of safe and market-linked investments can help balance your returns and reduce risks.

Additionally, consider the tax benefits you can avail. If you choose a market-linked option, review its historical performance to make an informed decision. 

Common Pitfalls to Avoid in 5-Year Investment Plans

One common mistake people make while investing in 5-year plans is putting too much money into options that are hard to access. This can create problems if you need cash quickly, for example, to cover medical emergencies, sudden travel or urgent home repairs.

To avoid this, it is important to keep some of your money in investments, such as regular fixed deposits or recurring deposits, which allow you to withdraw funds before maturity if needed.

Final Word

If you prefer safety and want predictable returns, a fixed deposit can be the best investment plan for 5 years. It provides guaranteed interest at a fixed rate for the entire tenure. 

With Stable Money-partnered banks, you can access fixed deposits offering up to 8.30% interest per annum, all DICGC-insured, without the hassle of opening separate savings accounts. Booking is simple, secure and available anytime. 

Download the Stable Money app now to invest in fixed deposits and make your money work steadily towards your financial goals!