Best Investment Plans for 3 Years

Investment is usually a long-term game. However, people invest for a specific tenure if they have short-term goals like purchasing a car, buying a home, or going to a dream destination, among others. It is important to note that if you are looking for the best investment plans for 3 years, you also need to keep the liquidity and safety aspects in mind so that you can withdraw the money as and when required.

This article will help you to choose the best investment plan for 3 years so that you can make some judicious investment decisions based on past performances and growth potential in the future.

What are the benefits of a 3 year Investment Plan

Short-term investment solutions, as opposed to long-term investments, are intended to meet the financial needs of individuals within a predefined timeline. 

Thus, short-term investments must be evaluated, keeping the following benefits in mind: 

1. Diversification:

Opting for a medium-term investment plan for 3 years would work well in diversifying your whole portfolio. Short-term investments are known for offering flexibility to invest in different investment instruments at the same time.

2. Returns:

Investing for a fixed duration of 3 years is done to avail reasonable returns but with moderate or low risk. This is called the risk-return tradeoff.

Since the risk factor in short-term investments is usually low—particularly in fixed income or debt instruments—it is considered to be a viable investment choice for those with a low-risk appetite.

3. Liquidity:

The sheer liquidity of short-term investments offers several advantages to investors. As these short-term investment plans generally have high liquidity they act as a financial cushion for emergency situations, allowing you to safeguard your long term investment.

The Best Investment Plan for 3 Years

Let’s now take a deeper look at the best investment plan for 3 years:

1. Fixed maturity plans

Fixed maturity plans, often called FMPs, are debt investments that invest mainly in fixed-income instruments, including certificates of deposit or bonds, to lock in current yields. This is intended to minimise the fluctuations in interest rates that debt markets suffer.

FMPs are essentially closed-end mutual fund schemes with a set maturity date. The duration of these plans ranges from a month to around 5 years. Apart from the fixed returns, FMPs also offer a tax benefit to investors if they opt for a tenure of more than a year.

2. Savings accounts

Savings accounts are deposit accounts at a bank or similar financial organisation that pay interest to the account holder. Some bank accounts often offer a low-interest rate, but their security and dependability make them a fantastic option for investing spare cash for short-term needs.

3. Arbitrage funds

Arbitrage funds are hybrid mutual funds that invest at least 65% of their assets in equity and equity related securities. These funds generate profits by exploiting price differences of the underlying assets in different market segments. To put it simply, the strategy of these funds is to simultaneously buy and sell securities in different markets to take advantage of different prices. The profit is the difference between the cost price and the selling price. 

4. Equity Linked Savings Scheme

An ELSS fund is an equity-oriented mutual fund that is eligible for tax deductions of upto Rs.1.5 lakhs under Section 80C of the Income Tax Act, 1961. The fund manager of an ELSS fund allocates approximately 65% of the portfolio towards equity and equity-linked securities. Further, these funds come with a lock-in period of three years, the shortest among all tax-saving investment options. To summarise, adding ELSS in your portfolio will offer dual benefits of tax deduction and equity investment. 

Read More: Best SIP Mutual Funds in India to Invest in 2022

Who Should Invest in a 3-year Investment Plan?

These 3 year investment plans are the best for the following classes of investors:

• Investors who seek predictable return rates.
• Investors looking to invest for short to medium-term goals like buying a car or going on a dream vacation.
• Investors who have a low-risk profile.

The Bottom Line

With all this information, you can make a fully informed decision about what short-term investment plans you want to choose to accomplish your investment goals. However, like all financial decisions, there are no guarantees that one plan will always perform better than the other. So, analyse your financial goals and risk appetite before choosing an investment avenue.

Frequently Asked Questions