Best Investment Plan for 1 Year

When you are trying to save or invest money over the short term, you may have to look out for a number of investment options to find a suitable investment plan for your needs. The fact is that, while there are numerous short-term investment plans in the market, it is your risk profile and your investment goals that will decide which investment is right for you.
 

Though one-year online investment plans are not meant for everyone, many investors need to meet some short-term financial obligations in a year’s time. Hence, here are some short-term investment options as listed below.
 

What are the best investment plans for 1 year?

When investing for just one year, diversification helps balance safety and returns. Instead of relying on a single option, spreading funds across fixed deposits, debt mutual funds, and post office schemes to protect capital from volatility and changing interest rates. Short-term diversification focuses on stability, as recovery time is limited.
 

Pairing low-risk instruments with moderate-yield options creates a mix of security and growth. Choosing investments based on risk appetite and liquidity ensures flexibility if funds are needed sooner. Overall, a diversified one-year portfolio helps safeguard savings while earning steady returns, even amid uncertain market conditions.
 

The key is selecting complementary instruments that align with your risk tolerance and liquidity needs. Let's explore the best investment plan for 1 year available in India that can form part of your diversified short-term portfolio.

Fixed deposit (FD)

Fixed Deposits are considered to be one of the safest one year investment plan. If you are already operating your bank account online, then you can simply start your online FD account for a period of one year. The investment amount will have to be paid in a lump sum, and since you are investing for the short term, you can easily and safely deposit a large amount of funds.
 

You have an option of saving the funds for a period of 6, 9 or 12 months as a 1-year investment plan and renewing the deposit on maturity if you do not need the money immediately.
 

If you are a senior citizen, you get an additional rate of interest of 0.5% per annum. Subject to your tax* slab and your income, the interest on your FD can be eligible for tax* benefits.
 

Recurring deposit

Recurring Deposits or RDs need to be made at regular intervals over the investment tenure; however, there is a maturity fee that needs to be paid as a lump sum. Many banks that have online facilities also enable you to open your RD account online in a swift and easy manner.
 

You can have an RD for a tenure of a single year to save up for personal short-term goals, such as wanting to enjoy a vacation with your loved ones or making a minor but expensive purchase such as a wedding gift and so on. Each month, you can invest a specific sum of money over the next year, which can be used upon maturity. There are also Recurring Deposits that you can open for a period of 3 months or 6 months.
 

If you choose to close your RD account within the first month of the investment, then you will not be able to earn the interest on the savings.
 

Post office term deposit

A Post Office Term Deposit can be made for a tenure of 1-5 years, making it one of the safest investment plans for one year. If you are a post-office account holder, then your internet banking facility is likely to offer a Post Office Term Deposit online. These deposits can be made in a post office for the selected tenure of your choice – for one year, in case you are looking for a one-year investment plan.
 

The interest on these deposits is paid out annually, and you can withdraw money from the account prematurely after a period of 6 months. This scheme offers fixed returns on your investment; the interest (taxable*) for a 12-month or 1-year investment will be calculated on a quarterly basis but will be paid out annually.
 

Currently, Post Office deposits offer an interest rate of 6.6% to 7.4% for investments made for a 1-5-year tenure.
 

Fixed maturity plans

Fixed Maturity Plans offer a flexible tenure of 1 month to 5 years if you are seeking a 1-year investment option. The benefit of investing in this scheme is that the investor can earn constant returns on their portfolio. However, do note that the liquidity of these funds is quite low, and so only if you are sure of making a one-year investment in these funds should you proceed to lock in the investment.
 

The other benefit of Fixed Maturity Plans is that the returns are consistent but not fixed for a short investment tenure, such as one year, and they may also be quite consistent. That way your investment portfolio can be protected against market movements.
 

Being a mutual fund, the short-term capital gains within a period of 36 months will be taxed, while the long-term capital gains made after 36 months will attract a tax* rate of 20% after an indexation benefit.
 

Arbitrage mutual funds

Arbitrage mutual funds are hybrid mutual funds that buy and sell funds in different markets and benefit from varying prices to generate profits. If your broker offers an online investment platform, you can start investing in arbitrage mutual funds online and maintaining your investment for a period of 12 months. These are open-ended funds and are considered to carry some amount of risk; however, arbitrage mutual funds qualify for some tax* benefits.

 

Therefore, it is important that you only invest in these funds with sound advice from your financial advisor and only if your risk profile is up to the market. These funds are better suited for medium to high-risk investors seeking profits in a shorter time.

 

Being open-ended mutual funds, these funds offer more liquidity since the units need to be purchased and sold often. You can expect a return of about 6% per annum on these funds; however, the returns may not be consistent.
 

Debt mutual funds

Debt mutual funds are less-risk mutual funds that can be started online and offer fixed income along with capital appreciation. While they are still market-linked funds, they carry much less risks than equity funds. You can earn returns of up to 7% per annum on your debt mutual funds and choose an investment tenure of 6-12 months by choosing a low-duration fund. If you select a money market fund, your investment will have a maturity of one year.

 

While debt mutual funds are surely a good option for a one-year investment plan, you should be aware of how these funds are taxed. If you make profits on your fund within a period of 36 months, these profits are added to your income and taxed* accordingly. The profits made after a period of 36 months will be taxed* at 20% but with an indexation benefit.
 

Gold ETFs

Gold Exchange-Traded Funds (ETFs) allow you to invest in gold without physically holding it. These funds track gold prices and trade on stock exchanges like regular stocks. You can buy and sell units anytime during market hours, with returns linked directly to gold price movements. Minimum investment starts from the price of one unit.
 

Gold ETFs are suitable for investors who want exposure to gold as part of their portfolio diversification. Each unit typically represents a standard measure of gold, making it accessible for various investor budgets. The funds charge an annual expense ratio for managing the investment. For tax purposes, gains made within a specified short-term period are treated as short-term capital gains and taxed* according to your income slab.

 

Best investment plans for 1 year

 

Investment Type	Liquidity	Expected Returns	Lock-in Period	Minimum Investment
Fixed Deposit (FD)	Low - Premature withdrawal with penalty	Moderate - Fixed returns	None - Can withdraw with penalty	Varies by bank
Recurring Deposit	Low - Premature closure affects returns	Moderate - Fixed returns	None - Can close with reduced interest	Low - Can start with small amounts
Post Office Term Deposit	Moderate - Can withdraw after 6 months	Moderate - Fixed returns	6 months minimum	As per post office norms
Fixed Maturity Plans	Very Low - Closed-end structure	Moderate to High - Market-linked	Until maturity	As per fund requirements
Arbitrage Mutual Funds	High - Can redeem anytime	Moderate - Market-dependent	None	As per fund requirements
Debt Mutual Funds	High - Can redeem anytime	Moderate to High - Market-linked	None	As per fund requirements
Gold ETFs	High - Trade during market hours	Variable - Depends on gold prices	None	Price of one unit

Factors to consider before investing for a year

When creating an investment plan for one year, you need to consider multiple factors beyond just returns. Evaluating these aspects helps ensure your investment aligns with your financial situation and goals.
 

Risk

Assess your risk appetite before choosing an investment. If you cannot afford to lose any portion of your principal, opt for guaranteed return options like FDs or post office deposits. Market-linked investments like mutual funds and gold ETFs carry the possibility of negative returns, which may not be suitable if you need the entire amount after one year.
 

Diversification

Spreading your investment across different asset classes reduces overall portfolio risk. Instead of investing all funds in one instrument, consider allocating across fixed deposits, debt funds, and gold ETFs. This way, if one investment underperforms, others can balance your overall returns and protect your capital.
 

Liquidity

Consider how quickly you can access your money if needed. Open-ended mutual funds and Gold ETFs offer high liquidity with redemption within a few days. Fixed deposits and Fixed Maturity Plans (FMPs) have restrictions on early withdrawal. Choose investments that match your emergency fund requirements and potential cash flow needs during the year.
 

Flexibility

Some investments allow partial withdrawals or top-ups, while others require you to keep the entire amount locked. Mutual funds offer systematic withdrawal and investment options, providing flexibility to adjust your investment. Fixed instruments like FDs and post office deposits have rigid structures with limited modification options once opened.
 

Financial goals

Your investment choice should align with your specific financial goal. If you're saving for a fixed expense like a down payment, choose guaranteed return options. For wealth accumulation with some flexibility on the target amount, market-linked options may be appropriate.
 

Market conditions

Interest rate trends affect returns on fixed-income investments. When rates are rising, shorter-duration deposits allow you to reinvest at higher rates sooner. During volatile markets, arbitrage funds may generate better opportunities. Understanding current economic conditions helps with timing your investments and selecting appropriate instruments.
 

Tax efficiency

Different investments have different tax treatments. Fixed deposit interest is fully taxable at your slab rate, while equity mutual funds offer tax-free* gains up to a threshold. Calculate post-tax returns to understand the actual benefit. If you're in a higher tax bracket, tax-efficient options like arbitrage funds may provide better net returns.
 

Costs and charges

Account for all costs that reduce your returns. Fixed deposits have minimal charges but may have premature withdrawal penalties. Mutual funds charge expense ratios that directly impact returns. Gold ETFs have both expense ratios and brokerage costs. Compare net returns after deducting all applicable charges to make an informed decision.

How to choose the best one-year investment plan?

Follow these steps to select the suitable 1 year investment plan:

• Define Your Financial Goal: Identify the reason for the investment - it may be for holiday, emergency fund, down payment, or savings in general. Calculate the precise amount you need after a year.
• Measure Your Risk Tolerance: Decide what degree of risk you can accept. If you need the entire amount that is assured, invest in fixed-income securities. If you are willing to accept some fluctuation in returns for potentially higher returns, consider market-linked securities.
• Calculate Available Investment Amount: Determine whether you wish to invest a lump sum amount or make regular contributions. This may help you decide what type of investment may suit your needs.
• Compare Investment Options: Research the nature, yield, liquidity, and tax* obligations of the chosen investment option. Compare options side by side with comparison tables. Assess the degree to which each option meets your goal, risk tolerance, and investment amount.
• Diversify Your Portfolio: Don't invest all your funds in one instrument. Diversify your investment in two or more instruments. For example, invest a portion of your funds in fixed deposits for a guaranteed return and another portion in debt mutual funds for greater return opportunities.
• Monitor and Review: Schedule reminders to review your investments every quarter. Verify that your investments are performing as predicted and if any changes are required. You can rebalance your portfolio to adjust it as per the market trends.
• Plan for Maturity: Decide beforehand how you’ll use or reinvest the maturity amount to maintain financial discipline.  Having a clear plan prevents hasty decisions at maturity.
   

Conclusion

One-year investment schemes have a variety of options to cater to different financial requirements and risk profiles. Ranging from secure schemes such as fixed deposits and post office schemes to market-linked schemes such as mutual funds and gold ETFs, you can select as per your objective and risk tolerance. Spreading funds across several schemes can help balance safety with returns while retaining your capital. Don't forget to check on your investments periodically and make provision for what you will do once they mature. Short-term investments, with proper choice and tracking, can enable you to achieve your goals successfully.