It’s the small investments that make a huge difference in the long term, provided you remain invested.
Let’s assume you’ve controlled your expenses very well for the month. You’ve met your fixed commitments like rent, EMIs, utilities, and supplies. You’ve parked your money into investments. And you’re still left with a nice sum of Rs 5000 at the end of the month. It’s not a lot of money. But don’t underestimate its value. It’s the small investments that make a huge difference in the long term, provided you remain invested.
What are the smartest moves you can make with the money? Let’s take a look at some ideas—assuming you haven’t tried them already.
Buy a term plan for Rs 50 lakh
Assuming you’re a 30-year-old salaried male earning Rs 500,000 a year, you can get a term insurance plan for Rs 50 lakh for premiums starting from Rs 4000. For that amount, you would typically get a lump sum cover. Your nominee will get the lump sum in case of your death. If you have dependents, and if you haven’t purchased a term cover yet, this is a must-buy for you to secure the long-term financial interests of your loved ones.
Buy health insurance
Hospitalisation is expensive and will continue to get expensive. If you have taken a health insurance policy, you can get cashless treatment at hospitals that have networked with your insurer. With a small budget of Rs. 5000, your options are limited. But you can still avail a family floater for yourself and your spouse. Assuming you’re a married 30-year-old, you can get a cover of Rs. 200,000 for annual premiums starting from Rs. 2900. However, due to the low premium, there will be many exclusions from the policy. Such a limited policy should be a short-term arrangement. The moment you have sufficient funds, you should upgrade to a larger health coverage with more facilities, even if it means having to pay a larger premium.
Buy mutual fund
Rs 5000 is a good amount to take to the mutual funds market for first timers. You can try a lump sum purchase with this amount, or try an SIP if you are keen to keep investing in the following months. You can purchase moderate risk funds (equity) or low-risk ones (debt). You can also save tax by buying ELSS funds; however they come with a three-year lock-in. Remember to remain invested for long-term, compounded gains. Rs. 5000 invested in a fund growing 12% annually becomes Rs 15,500 in 10 years. The same amount locked in a fixed deposit and assuming 30% taxation on interest earnings becomes Rs. 8300 in the same period.
Pay your debts
If you have an outstanding credit card bill, or owe someone money, or have an outstanding loan EMI, consider reducing your interest outgo by making a pre-payment using this amount of Rs. 5000. Many lenders would insist on a principal pre-payment that is the size of at least one EMI. Therefore an amount of Rs. 5000 may not be enough for pre-paying on large-sized debts like a home loan. Therefore you must go to any lender who will accept Rs. 5000 on an outstanding loan balance. If you have a credit card balance, this is especially necessary since credit card interest rates are among the most expensive, with annualised rates between 20-40%.
Rs 5,000 is an ideal amount for trying your hand at the stock market. Your risk is limited to the size of this amount. You can go for large-cap blue chip firms and be assured of steady long-term growth with moderate risk. Or you can make a dicier bet and go with a mid or small-cap scrip that may promise explosive short-term growth but is fraught with risk. Either way, if you’re new to stock trading, this would be a good learning experience, and you have only Rs. 5000 to lose.
Buy Precious Metals Or ETFs
There’s slow and steady long-term appreciation in gold and silver. You could buy a small quantity with Rs. 5000. You could also buy a gold ETF. However, remember that this is a volatile market, and both ups and downs in prices could be rapid.
The author is CEO, BankBazaar.com