18

Financial Planning

The Economic Times Wealth, April 18-24, 2016

OPTION 1

OPTION 2

OPTION 3

REDUCE YOUR DEBT

BURDEN

FOR ADDITIONAL TAX

BREAKS, INVEST IN NPS

INCREASE YOUR
EQUITY EXPOSURE

Before you start investing your surplus, pay

off your debt. It could be outstanding credit
card payments, car loan, personal loan, etc.
Not only will it bring psychological relief,
youll also save on the interest outgo. Start
settling your debt in the order of interest
rates. The ones with no tax benefits and
higher interest cost should be paid off first.
Make sure you know about the pre-payment
charges. Loans that offer tax benefitsstudent loans and home loansshould be the
last on your list.

Upto `50,000 invested in the NPS, under the

new Section 80CCD (1b), can be claimed as
deduction, over and above the `1.5 lakh investment deduction limit under Section
80C. At the highest tax bracket of 30%, this
could mean a savings of `15,000 on your
next tax bill. Under NPS, it is mandatory to
buy an annuity plan with 40% of the corpus
at maturity. The remaining 60% can be withdrawn. Until last financial year, this 60% was
fully taxable at marginal rates. But this year
onwards, the Finance Minister has made
withdrawals up to 40% of the corpus tax exempt, adding to NPS appeal.

The Sensex has fallen around 12% in the past one

year, and this provides an opportunity for longterm buyers. You can invest your lump sum in a
debt fund and use a systematic transfer plan to
move the money gradually into equity funds.
You could also earmark this corpus for a goal that
is 5-10 years away. For instance, you can use the
money towards increasing your down payment
for an asset purchase and reduce your future
loan burden. Even if the returns are in line with
the index, the compounding effects of a 12-15%
tax-free growth can really generate huge returns
over time, says Priya Sunder, Director, PeakAlpha Investment, an investment advisory firm.

Best
ways to

OPTION 4

INVEST FOR YOUR

DAUGHTER

invest
your

bonus
Do not fritter away your bonus. There are
several productive ways to use it for a better
financial life, says Chandralekha Mukerji.

If your daughter is less than 10 years

old, Sukanya Samriddhi Yojana
(SSY) is the best debt option to invest in for her future. At 8.6% yearly
compounded rate, this is among the
highest paying small savings
schemes. Investment in SSY is tax
deductible under Section 80C, and
you can invest up to `1.5 lakh per financial year (minimum is `1,000).
Also, the principal invested, the interest accumulated and the payout
are all tax-free. However, the
scheme lacks liquidity. You have to
stay invested in the SSY till your
child turns 21. Premature withdrawals are only allowed after the girl
turns 18 and you can withdraw only
up to 50% of the corpus.

OPTION 7

OPTION 6

OPTION 5

INVEST IN YOURSELF

BUILD AN EMERGENCY
CORPUS

BUILD A CORPUS FOR

BUYING YOUR HOUSE

If you do not have an emergency fund, you

should use your bonus to build one. Given that
it is an emergency fund, you should invest the
money in highly liquid options such as shortterm debt funds. The corpus will help you
manage sudden, unplanned expensesmedical emergencies, for instance. It will help you
avoid last-minute scrounging for money, fire
sales or taking bridge loans to tide over the
situation.

An extra `50,000 in tax break has been introduced for first-time home buyers where loan
amount is less than `35 lakh and the propertys worth is not more than `50 lakh. Use the
bonus to increase the size of your down payment. It will bring down your loan requirement, which means lower EMIs and, if it falls
below `35 lakh, theres the extra tax benefit
as well. Put the bonus in an income fund if
your purchase is less than a year away. For
more than a year, invest in equity funds
where the returns are tax-free after one year,
says Anil Rego, Founder, Right Horizons.

Its okay if you cannot decide on how to utilise the

money right away. Salt away the money in a liquid fund for a couple of months, while you think
how best to utilise it. It will afford you some cooling-off period and also prevent you from frittering
the money away in a hurry, advises Jayant Pai,
CFP and Head, Marketing, PPFAS Mutual Fund.
However, keep in mind that financial instruments
are not the only investments that fetch returns.
Spend on enhancing your skills, join a course
that can improve your earning levels, says Bhuvana Shreeram, Head, Financial Freedom Golden
Practices. Such an investment will not only help
you get a fatter bonus package, but fetch you regular returns throughout your life.