Best Investment Plan for 1 Year

One-year investment plans are highly liquid investment options that are focused on providing capital protection. Since these plans have a high degree of safety, it makes them suitable for temporarily parking money without making long-term commitments.

These plans can be a suitable option to diversify your investments and ensures that your investment portfolio offers an ideal balance between risk and return. Unlike long-term investments such as pension plans or ULIPs, short term returns do not provide tax benefits and returns from these 1 year investment plans are taxable as per applicable rules.

When investing for a period as short as 1 year, focusing on capital protection is essential along with ensuring that volatility risk is minimised. Simultaneously, these investment plans should also offer a high degree of liquidity as the investment has to be redeemed as soon as the 12 month investment period ends:

• Fixed Deposits (FD)

  
  Fixed deposits (FDs) for a period of 1 year are offered by both private and public-sector banks in India. Fixed deposits offer assured returns that are locked-in at the time of making the deposit. In case of a 1 year Fixed Deposit the original principal along with accrued interest can be withdrawn at maturity.
  
  However, TDS on FD may be applicable and the returns are taxable as per the slab rate of the individual. Early withdrawal of FDs is also allowed but may attract a penalty.



• Recurring Deposits (RD)

  
  Recurring deposits (RD), allow you to invest a fixed amount every month for a pre-determined investment term of 1 years. These deposits allow you to invest at regular intervals that helps promote financial discipline. The interest rates of RD are comparable to FD and locked-in at the time of inceptions.
  
  RD are considered safe investments as they offer assured returns that remain unaffected by changing market conditions. The returns from a RD are taxable as per the income tax slab rate of the individual.



• Liquid Fund(ELSS)

  
  Liquid funds are low-risk open-ended debt funds that primarily invest in debt securities and money market instruments with maturity of up to 91 days. Since these are market-linked instruments, returns are not guaranteed. But liquid funds rank high on safety due to relatively short maturity of the investments they hold.
  
  Liquid mutual funds offer higher returns than FDs, attracting potential investors for better returns at relatively low risk. Returns from liquid funds after a holding period of 1 year are taxable as per the slab rate of the investor.



• Ultra Short Duration Funds

  
  Ultra short duration funds are a type of debt mutual fund that primarily invests in debt and money market instruments with Macaulay Duration between 3 months to 6 months. Similar to liquid funds, ultra-short duration funds do not offer assured returns, but have high liquidity. However, since a majority of the investments held by these funds feature short maturities, the risk involved when making this investment is relatively low.



• Arbitrage Funds

  
  Arbitrage funds are a type of equity-oriented hybrid mutual fund that leverages the differences in price between derivatives and cash markets of equity shares. This arbitrage strategy helps the fund lock-in profits based on changes between these two markets. While returns are not guaranteed, the risk involved in relatively low since the fund hedges every investment it holds.
  
  These funds are one of the best investment options for 1 year as they have the potential to offer higher returns than liquid funds with minimal additional risk. If you redeem units of arbitrage funds after holding investments for over, 1 year they are taxed as equity investments. This means, nil capital gains tax on returns of up to ₹1.25 lakh in a tax year.



• Post Office Term Deposits

  
  Post office term deposits (POTDs) are fixed deposits offered by India Post. These deposits have a maturity period ranging from 1 year to 5 years and offered assured returns that are locked in at inception. The Government of India guarantees the returns from POTDs, ensuring safe and asssured returns for the investor.
  
  Investors receive the interest on POTDs annually, but they are calculated quarterly. The investor is responsible for paying taxes on the interest income at per the applicable income tax slab rates. During the investment tenure, liquidity of this investment is limited and penalty is charged in the case of premature withdrawal.



• Demand Deposits

  
  Money deposited in a demand deposit account can be withdrawn at any moment without any prior notice. The interest rate on demand deposit is usually lower than that offered by fixed deposits. The actual rate of offered by the account depends on multiple factors such as the bank you hold the account with, the type of demand deposit and the account balance.
  
  The high liquidity offered by demand deposits along with multiple online and offline withdrawal methods allows you to easily access your money as and when required. While there is no minimum or maximum limit on how long you can keep your money in a demand deposit, long-term parking of funds in these account is not recommended due to relatively low returns.



• Money Market Funds

  
  Money market funds are a type of debt mutual fund that primarily invest in money market securities with maturity of up to 1 year. They aim to maintain high levels of liquidity while providing attractive returns over a short term investment period of up to 1 year. Due to the short maturity of underlying investments, money market funds typically feature low volatility and interest rate sensitivity. Returns from these debt funds are taxed as per the slab rate of the investor if the holding period is 1 year prior to redemption.



• Treasury Bills

  
  Treasury Bills (T-Bills) are highly liquid, short-term securities that are backed by the government. The Government of India issues them through the RBI to help the government meet its short-term cash needs, so T-bills offer sovereign guarantee that ensures maximum safety.
  
  T-Bills come in 3 terms: 91 days, 182 days, and 364 days. They are sold at a discount and redeemed at face value, so you get a risk-free return on the difference. That’s why as a one year investment plan, T-Bills are considered suitable by conservative investors who want minimal volatility of their investment.

With a 1-year investment plan, you get the opportunity to gain better and more stable returns. They are suitable for short-term financial goals as you can receive the maturity amount within a year of investment. Here are some of the key features that are commonly associated with best investment plans for 1 year:

Investment choices need to made after careful consideration of your unique financial needs. While no single option can be called the best investment plan for 1 year, a closer look at the below factors can help you choose a one year investment option.

While selecting the best investment options for 1 year in India, one should prioritise safety, liquidity, and returns. Fixed deposits deliver reliable security, while T-bills via RBI Retail Direct platform are ideal for conservative investors seeking the safety of sovereign guarantee.

While investors with higher risk appetite who are looking for slightly higher returns than FD/RD can seek out debt funds such as liquid funds, ultra short duration funds, money market funds, etc.