It’s assessment time! How to invest your hiking amount prudently

HIGHLIGHTS

  • If you have taken out a loan from a bank or the NBFC, it is advisable to use part of your salary increase to make prepayments of the principal of your loans.
  • One must use the excess money for premium payments in order to be covered by term life insurance. You can also use your extra income to purchase comprehensive family health insurance policies.
  • If you cannot save to the full extent of the Rs 1.5 lakh available to you under Section 80C, use your increased income to improve your tax-saving investments.

New Delhi: It’s already May! So, by now, most companies would have closed their annual employee review process. Most of you would have already started planning what to do with the extra money. Of course, investing the extra amount is the smartest thing to do. But, most of us don’t know how to go about it.

As an investor, you want your hard-earned money to multiply. There are several smart ways to invest your hiking money. Look at the five options that can help you multiply your extra income:

Start MF SIP or increase amount of existing plan.

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With a raise, one can invest that extra money in a Systematic Investment Plan (SIP) in mutual funds. If a SIP is already running, you can increase the contribution to get a larger corpus in the future. This habit also helps you be a regular investor and build wealth while fighting the threat of long-term inflation.

Increase the contribution to the EPF account
Employees are generally required to contribute 12% of their base salary to the Employees Provident Fund. However, you can increase this amount as per your convenience. If you are a conservative investor and want assured returns as well as capital protection, you can opt for a voluntary increase in the PF contribution. It also helps you get a tax refund under Section 80C of the Income Tax Act.

Loan prepayment

If you have taken out a loan from a bank or the NBFC, it is advisable to use part of your salary increase to make prepayments of the principal of your loans. This will help you get rid of the burden too quickly, because you will not pay for 20 or 30 years. However, you should avoid prepayments if you are nearing the end of the loan term to receive maximum tax benefits on home loan principal and interest.

Buy insurance coverage

It’s also wise to have financial safety nets to protect your family against any unfortunate eventuality. It could be your untimely demise or sudden health issues that need to be addressed urgently. One must use the excess money for premium payments in order to be covered by term life insurance. You can also use your extra income to purchase comprehensive family health insurance policies.

Learn about tax investments

With the salary increases after the assessment, the tax debts increase. If you cannot save to the full extent of the Rs 1.5 lakh available to you under Section 80C, use your increased income to improve your tax-saving investments. On the one hand, it helps you reduce your tax payment each fiscal year; the other; the investments thus made provide you with the necessary growth of your investments.

You can choose options such as equity-linked savings plans (ELSS) offered by mutual fund companies if your appetite for risk is moderate. Conservative investors can opt for the Public Provident Fund (PPF) or the National Savings Certificates (NSC).

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