Got Bonus? Learn How To Invest Rightly
Written on Monday, May 22, 2017
By Vijay Thapliyal - Sr. Manager - Mutual Fund Group
Fortunate to have a good bonus this year and wondering how to best use your hard earned money, then here are some good investment suggestions for you.
First and foremost, if you have any hefty loan, it is better to utilize your bonus to pay off your debts immediately. So you can start by paying your credit card bills, clear personal loan and pre-pay your home loan. In case you don't have a heavy loan to pay off then you can certainly opt for the long term and short term investments. Of course, your choice of investment instruments is contingent upon your tax slabs and future priorities. However, for any investor the goal of investment shouldn't be just tax saving, rather the aim should be towards meeting his/her life-long financial goals and tax-saving should come as the by-product.
For Less Than 1 Year
It is always good to hold your investment at least for 3 years because then only you will start reaping returns. However, for the time horizon of less than 1 year, there are a few investment options such as Liquid Funds and Short Term Plans and Corporate FDs
For 1-3 Years Time Horizon
For short-term investments, you can consider investing in the following options:
Bond Funds, Dynamic/Flexi Bond Funds, Gilt Funds, Monthly Income Plans, Balanced Funds, Index Funds, Equity Diversified and Equity Tax Saving Scheme (ELSS)
Note: The investment options are arranged in the increasing order of the risk-return grid. meaning Bond Funds are of comparetively low risk and subsequently, the risk increases towards Equity.
For 3-5 Years Time Horizon
- Low-Risk Appetite Investors
As a low-risk appetite investor, you can opt for Arbitrage Funds, FMPs, Short-term Debt Funds, and Long-term Debt Funds.
- Moderate Risk Appetite Investors
Your investment options as per your moderate risk appetite are Debt-oriented hybrid funds, Monthly Income Plan/MIPS, and Balanced Funds.
But if you are looking for tax-saving investment, then even as a moderate investor also, you can consider ELSS (Equity Linked Saving Scheme). You may see it as a volatile investment because it is Equity linked. The solution to it is Systematic Transfer Plan (STP). It is a comparatively safer route to invest in ELSS. What you need to do is put your money in a liquid fund and then start Systematic Transfer Plan (STP) to systematically shift small amounts to an equity fund every month. This will lower the volatility effect.
- High-Risk Appetite Investors
If you are willing to take the risk then you can consider investing in instruments that have the potential to offer good returns. Balanced Funds, Index Funds, Equity Diversified funds are the good choices for you. After 1 year, capital gains from equity and balanced funds are tax-free.
If you are looking for tax saving plus wealth creation, then ELSS (Equity Linked Saving Scheme) is the right investment option for you.
For Over 5 Years Time Horizon
When the goal is long-term investment and investor is not risk-averse, then he/she can opt for Equity Diversified Funds, Equity Sectoral Funds, Large-Cap and Multi-Cap Equity Funds. An investor with moderate risk appetite can opt for MIPs and debt-oriented hybrid funds and investor who have low-risk appetite can invest in CPOFs, FMPs and Long-term Debt Funds.
While making any investment decision, you should take into account your overall asset allocation. Your investment portfolio should be a mix of instruments offering guaranteed returns plus instruments with the potential of offering higher returns.