There may be instances where one may come across a situation where you have a lump sum amount in your hand and you have no idea where to invest them.
Lumpsums amounts can be invested in a variety of ways, but, you should keep the tax and other things in mind. This is specially since lumpsum is really a large amount and you have to take care of tax liabilities that might arise. In any case here are a few lumpsum investment options that you could consider.
Savings Account of Banks
In case the lumpsum amount is needed at a later stage, it is advisable to place the money in liquid instruments like savings bank account. Unlike, bank FDs where there could be a penalty for early withdrawal, here you do not have these issues. You can look at the RBL Bank Savings Account, where you get an interest of as much as 7.1 per cent, where the amount is really high. The other best option is the IDFC Bank deposit, where you get an interest rate of as much as 7.5 per cent per annum. The next best option would be the Yes Bank Savings Account where you receive an interest rate of 6 per cent per annum.
Liquid Funds for Very Short Term
When you need time to look and select property till then instead of keeping money ideal, one can park in liquid funds which can be easily liquidated. This will ensure that you earn some returns in the short term. For example, there are funds like the Can Robeco Liquid Fund, which has generated a return of 7.4 per cent in the last one year. There are other funds like Tata Liquid Fund and the Reliance Liquid Fund, where good short term returns are highly possible.
The very beginning should involve planning to set aside an emergency fund from the lumpsum amount that you receive. This would take care of any eventuality that might arise at a later stage. This could be a medical or any other emergency. Ensure that this amount is a pretty decent sum.
Concentrate on asset allocation
Allocating right asset and making right decisions matter depending on the amount. Investing differs with individuals risk capacity and financial commitment. If you have a complex instrument avoid investing in them if you do not understand the product. As we mentioned earlier consider the tax liability, liquidity and other aspects before investing a lumpsum amount.
Real estate can be a better option when one has not invested in real estate before. One can use the amount for down payment of any property. Or can pay off the earlier loan and look for a new property as an additional investment. We wish to state that real estate is not a very liquid asset to you need to keep in mind that if you want quick liquidity this is not the place for you.
Park In Short Term Debt Mutual Funds
If you are a risk-averse individual and tax is not a matter then one can invest in short-term debt funds. Tenure may differ from 6 months to 12 months. It must be noted that equity mutual funds are more tax efficient then debt mutual funds, so keep an eye on them. This may be a better way to invest your lumpsum amount. However, seek expert opinion always.
Long Term Funds for Tax Savings
One can look to invest in long-term equity funds to generate higher returns along with associated risk. Investing in a long term will provide you with tax benefits.
If you are risk averse, you can consider investing in best long-term debt funds which will generate good returns with time. However, understand clearly that this is a lumpsum amount, so please way the risks carefully. that is very important. There are a number of long term tax saving funds that you can choose from.
Systemic Transfer Plan
This is one of the best option when markets are peak and need correction. In this method, you invest in debt mutual fund and direct them to equity mutual fund by systematic transfer Plan (STP). By doing so, you are reducing the risk of investing a huge amount in equity mutual funds.
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Invest in Safer Instruments
Consider safer instruments as bank fixed deposit, if you are in higher tax bracket you can consider tax saving fixed deposit. However, this comes with a lock-in period of 5 years. So, do not invest large sums here. Also, this does not mean that the interest is exempted from tax. The entire income is very much taxable.
PPF is another best option when looking at tax saving and safety. Government securities and inflation-indexed bonds are another option for safe returns. However, it must be noted that you cannot invest large sums every year and PPF has a cap of Rs 1.5 lakhs per year.