Had A Small Windfall? Here Are Three Smart Things To Do
Invest into an ELSS
An ELSS stands for “Equity Linked Savings Scheme” and is a type of mutual fund that invests into the stock markets with a hard lock in period of three years. Before you balk at the thought of investing into the markets, do bear in mind that over the long run, they beat traditional asset classes hands down in terms of returns. The three-year lock in actually works to your advantage by forcing you to look the other way in case markets go awry, which they often do and will continue doing forever! Your annual contribution to an ELSS qualifies for a tax deduction under Section 80C, leading to a potential tax saving of Rs. 16,000 as well. As a category, ELSS funds have delivered generally provided impressive returns over 5-7 year timeframes. Even if you were to assume a relatively mundane growth rate of 12% for a 7-year holding period (ideal for equities), you’ll still wind up with a neat corpus of Rs. 1.1 Lacs in 2026 with an investment of Rs. 50,000, plus the tax savings that you’ll make this year.
Boost your Term & Health Cover
Avoid ULIP’s, traditional life insurance policies, annuities and ‘one time’ premium plans that will compromise your returns and provide you with a sub-standard life cover too, thereby serving no real need. If you’ve got a young family, you could purchase a family floater health insurance plan for Rs. 10,000 and up your life cover by around Rs. 50 Lacs by spending another Rs. 5,000 (bear in mind that these will become annual outgoes). Invest the remaining Rs. 35,000 in debt funds with a two-year time horizon, designating this corpus your ‘insurance fund’ of sorts. Better yet, look for a health insurance plan that offers you ‘wellness’ benefits such as a gym membership, and you’ll be killing two birds with one stone. At the end of each year, pull out another Rs. 15,000 from this ‘fund’ towards your annual health and term life premiums. In this way, even a small windfall of Rs. 50,000 could suffice for your comprehensive insurance planning needs for the next three years.
Prepay your Home Loan
Let’s face it – a Home Loan is supremely expensive proposition. You’re probably already aware that for the first half of your loan tenor, the EMI’s are composed mainly of interest repayments. Making prepayments early in the loan cycle can have a pronounced effect on your overall interest savings amount and on the loan tenor as well. If you’ve just about started a home loan sometime in the past five years, your first priority must be to utilize this Rs. 50,000 to make an early prepayment. A prepayment made in the 12th month, for instance, will lead to a substantial interest saving of Rs. 2.5 Lacs - and what’s more, you’ll own the property in entirety six months sooner as well. Even a prepayment made as far down as the end of the fifth year of your loan can lead to an interest saving of Rs. 1.6 Lacs, and a four-month reduction in your loan tenor. It would be a very wise move to commit your little windfall into making a prepayment to your home loan, before all else.
