While looking for investment avenues, don't go choosing anything randomly. Your age and whether you need income regularly are the two main things that you need to be clear about while investing your lump-sum money.
The current pandemic has led to higher awareness about personal finance, along with averseness towards risk. There are many people for whom it has become quite difficult to maintain financial stability. With the volatile economy and the rising health and life risks, individuals want to be safe and secure with both their life and money. Hence, if you have lump-sum money sitting with you, invest it. Do not let it sit idle, let the money work for you.
However, while looking for investment avenues, don’t go choosing anything randomly. Your age and whether you need income regularly are the two main things that you need to be clear about while investing your lump-sum money.
For instance, if you need regular income, experts suggest you should look at investing the lump-sum in an immediate annuity plan. This will provide you a deduction of up to Rs 1,50,000 lakh under Section 80CCC (limit combined with Section 80C deduction) in the year of investment.
Know that the annuity received from this investment will be fully taxable in the hands of the depositor according to their income slab rate. Hence, other than the returns being lower than FDs, if you are in the high-tax bracket, you will have very less left for you.
Additionally, for individuals above the age of 60, the first option they should look at is the Post Office Senior Citizens’ Saving Scheme (SCSS). With this, they will get a deduction of up to Rs 1,50,000 lakh under Section 80C in the year of investment. Note that, the annual interest income will be available for deduction up to Rs 50,000 along with all other bank interest income. The rest of it will be taxable as per the investor’s income slab rate. However, experts suggest this for senior citizens because this is one of the best and safest bet.
For individuals below 60 years of age, experts suggest they could also opt for Post Office Time Deposit along with some bank deposits. Keep in mind, the treatment of the Rs 50,000 per annum deduction for interest income, will be the same, as mentioned above.
Experts say another option that one could go for is liquid or short-tenure debt funds. This could be an option if earning income is not a priority and the investor can keep this money remain untouched for the next 5 years. The investor could also divide the lump-sum amount into smaller investments. This will give them the opportunity for better rupee cost averaging. For high-risk appetite investors, they can look at investments in equity funds, whereas low-risk appetite investors could consider Systematic Transfer Plans (STP). Split your lump sum between 2-3 liquid funds, and then move some amount every month into your preferred equity, debt, or balanced funds. Experts suggest one could consider investing around 20 to 30 per cent of the lump-sum in equity funds and the remaining in the debt funds.
Having said that, whichever way you choose, income from your investments will be taxed. If you are investing for the long term, safety, returns, and liquidity should be your priority while making investment decisions.