This article has been published in “The Tribune” on 8th August, 2016
It’s that time of the year you look forward to – appraisals, followed by a bonus and / or an increment. You feel entitled, and rightly so, to splurge some of the hard-earned money. Kids’ summer holidays are around the corner, and you have probably already made plans for a vacation. Now is also time to think smartly about how to make that extra money really count.
After you have done your party and vacation, it’s time to put the rest of the bonus to good use. The worst thing you can do is leave it idle in your bank account. Rs. 1 lakh left in the savings account costs you Rs. 500 in lost interest every month. That’s a family dining-out opportunity lost, every month!
If you think you need the bonus money within the next 3-5 years – say you are planning down-payment for a house – then you can put the money away in income funds. These are debt funds and carry no stock market risk. At the present time, they earn ~8% a year.
If you don’t have any immediate plans for the money, it’s even better. You can invest the money in equity mutual funds. Over the long term, these are by far the best products. Historically, equity markets have returned above 15% year-on-year. The risk is minimal if you stay invested longer than 7 years.
The best part of an increment is that you haven’t yet got used to spending the extra money! A great way is to use this to start a systematic investment (SIP) in a tax saving scheme. You hit several birds with one stone:
- Your tax saving is taken care of, without the panic that usually happens in Jan-Feb
- The money works for you in the best possible way – tax savings schemes are among the best performers
- Since you aren’t used to the extra money yet, you don’t even notice reduction in cash available here and now. And yet, you are moving money towards long term wealth building
Wondering how to go about all this? The Fisdom app allows you to do all the above in a completely electronic, paperless way. You can also get specific recommendations for the funds to invest in, for each case – bonus or increment.