When you get a bonus or have substantial amount in your bank account and looking to invest that amount; and still not sure how and where to invest that amount? Here i will brief you on how to invest your lumpsum amount. Investments can be for a short term, long term or to get regular income.
For me, long term is 5 years or more, which can be for your children's education, your retirement, child's marriage. Short term is 3 years or less, which can be saving for a vacation, down payment for a home or car. Regular income is mostly needed by the persons who don't have an active source of income and need a regular inflow of money to meet their needs.
You can invest whole amount at once in to a debt fund or fixed deposit. Choose the debt fund depending on the time horizon you want to stay invested. If you are not sure about investing in debt funds, you can always invest in fixed deposits. Debt funds can give you better returns than fixed deposits with least risk. You can check this link:- Debt Fund vs Fixed Deposit to decide.
I would say you invest the amount systematically rather than investing the whole amount at once. It helps you to average out your purchases. You get more units when market is down and lesser units when market is up, it helps to overcome risk of volatility and helps you generating better returns in long term.
Best approach is to invest the whole amount in a debt fund, preferably an ultra short term fund or a liquid fund. After that start a Systematic Transfer Plan (STP) form debt fund to equity fund. Larger the amount, longer can be the time period for STP. It need not to be very long, you can choose time period from six months to few years depending on the amount. Whenever you feel market is down you can transfer some extra amount from debt to equity also.
When you retire and don't have any active source of income than also you need money to meet your daily needs. Now to big question is how to get that? You just don't need income you need inflation protected income. Rs. 30000 may be sufficient for your monthly needs today but not after 5 or 10 years. So, you need inflation protected income to meet your needs.
Well there are many ways to get regular income. It mainly depends on your risk appetite. Simplest way is to have fixed deposit of whole amount and get the interest monthly but this is not the best method. Interest earned here is taxable. Secondly, returns are low, so, you may need a large amount to start with.
Another approach can be to invest in a debt fund with dividend option. Dividend you get is not taxable in your's hand as the mutual fund house has already paid the tax for it.
Best approach is to invest using bucket strategy, which i may explain in my later post. A better approach will be to invest some part in equity which can be redeemed after few years and some in fixed deposits. Why invest some portion in equity? Reason is, you don't need all the money immediately after retirement or at once and you still have 20-30 years may be more of your retirement to last. So, you invest some part of your retirement corpus in equity and allow it to grow. This way you don't need a very large corpus at the time of retirement (unlike fixed deposits). While that equity part of your money grows, you continue to meet your daily needs either from dividend or interest. Choose the approach your are most comfortable with.
Related links -
- Investments should be subject to investor knowledge
- Debt fund vs Fixed deposits
- Classification of Mutual Funds
- Classification of Debt Funds
- Understanding Liquid Funds
Happy Investing!!!
For me, long term is 5 years or more, which can be for your children's education, your retirement, child's marriage. Short term is 3 years or less, which can be saving for a vacation, down payment for a home or car. Regular income is mostly needed by the persons who don't have an active source of income and need a regular inflow of money to meet their needs.
Lumpsum investment for Short Term
For short term goals you should strict your investments to debt funds or fixed deposits. Don't greed yourself to invest in equity, just to get extra returns. You never know how market is going to play in future, you might be risking your money which should be avoided. Greed is never good, so stick to debt funds or fixed deposits for short term goals.You can invest whole amount at once in to a debt fund or fixed deposit. Choose the debt fund depending on the time horizon you want to stay invested. If you are not sure about investing in debt funds, you can always invest in fixed deposits. Debt funds can give you better returns than fixed deposits with least risk. You can check this link:- Debt Fund vs Fixed Deposit to decide.
Lumpsum investment for Long Term
For long term goals you should invest in equity funds. Different equity funds come with different risk and volatility. Generally, small cap equity funds are more riskier than large cap funds. Choose the equity fund as per your risk appetite. Now the doubt is whether to invest the whole amount at once or split it into smaller amounts?I would say you invest the amount systematically rather than investing the whole amount at once. It helps you to average out your purchases. You get more units when market is down and lesser units when market is up, it helps to overcome risk of volatility and helps you generating better returns in long term.
Best approach is to invest the whole amount in a debt fund, preferably an ultra short term fund or a liquid fund. After that start a Systematic Transfer Plan (STP) form debt fund to equity fund. Larger the amount, longer can be the time period for STP. It need not to be very long, you can choose time period from six months to few years depending on the amount. Whenever you feel market is down you can transfer some extra amount from debt to equity also.
Lumpsum investment for Regular Income
Well there are many ways to get regular income. It mainly depends on your risk appetite. Simplest way is to have fixed deposit of whole amount and get the interest monthly but this is not the best method. Interest earned here is taxable. Secondly, returns are low, so, you may need a large amount to start with.
Another approach can be to invest in a debt fund with dividend option. Dividend you get is not taxable in your's hand as the mutual fund house has already paid the tax for it.
Best approach is to invest using bucket strategy, which i may explain in my later post. A better approach will be to invest some part in equity which can be redeemed after few years and some in fixed deposits. Why invest some portion in equity? Reason is, you don't need all the money immediately after retirement or at once and you still have 20-30 years may be more of your retirement to last. So, you invest some part of your retirement corpus in equity and allow it to grow. This way you don't need a very large corpus at the time of retirement (unlike fixed deposits). While that equity part of your money grows, you continue to meet your daily needs either from dividend or interest. Choose the approach your are most comfortable with.
Related links -
- Investments should be subject to investor knowledge
- Debt fund vs Fixed deposits
- Classification of Mutual Funds
- Classification of Debt Funds
- Understanding Liquid Funds
Happy Investing!!!
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