There are times when you have some additional money every month and you may not be able to decide where to invest the same money.
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Investing your monthly surplus wisely would help you achieve both short-term and long-term financial goals. Certain factors can help you decide where you should invest your money, for example, it can be your emergency corpus, your short-term goals, and your long-term aspirations.
In this article, we will talk about how you should invest your monthly surplus that is left after expenses so that you can easily achieve your goals.
Having Or Building An Emergency Fund
Before exploring investment avenues, you must make sure you have prepared for emergencies. An emergency corpus works as a financial cushion in times such as job loss, medical emergencies, hospitalisation, breaking down of a car part, etc.
A well-funded emergency corpus typically covers 6 to 9 months’ worth of living expenses.
Liquid funds and flexi deposits can help you create a cushion for emergencies. It is because they are not as accessible as your savings bank account but can be easily redeemed to meet your emergencies.
Liquid funds: These funds are a type of debt funds and these funds typically invest in money market instruments like treasury bills and commercial papers. The plus point of investing in these funds is that you can easily access your money when needed. Also, the risk associated with these funds is very low, making them a safe and ideal option to invest for emergencies.
Flexi deposits: These are offered by banks and usually combine the features of an FD and a savings account. Meaning, the interest rate will be slightly higher than a savings account, and you may also be able to withdraw money partially without penalties. These features make them an ideal option to invest for emergencies.
Once you’ve saved or prepared yourself financially for emergencies or unforeseen circumstances, it’s time you start investing for your short and long-term goals such as retirement, children’s education, vacations etc.
Invest For Short Term Goals
For short-term goals like travel, downpayment for a car purchase etc, consider options that are easily accessible and safe to invest your money. Short-term FDs, recurring deposits and mutual funds can be considered.
Short-term FDs: These are fixed deposits with relatively shorter tenure, up to 1-2 years. With a fixed return and being a safe option to invest, it makes for an ideal option to invest for short-term goals. Remember, the interest rates may be relatively high compared to savings accounts but usually lower than long-term FDs.
Recurring deposits: As the name suggests, it allows you to invest a fixed amount each month for a predetermined tenure. They are an ideal option to build a habit of disciplined savings.
Mutual Funds: Mutual Funds that invest in short-term debt instruments and offer higher interest rates than traditional savings accounts are an ideal option to invest for short-term goals. They are suitable for goals with a horizon of up to 1-3 years.
Invest for Long-Term Goals
Long-term goals are goals with a time horizon of more than five years, for example, child’s education, retirement etc. For such goals, one can invest in equity mutual funds that invest in the equity markets. These funds offer reasonable returns over the long term and are ideal for people who can take higher risk.
Within equity funds, you can choose from large-cap, mid-cap, or multi-cap funds based on your risk tolerance.
Large cap funds invest in large cap stocks that are established companies. Large cap funds are typically less volatile than mid and small-cap funds as these funds invest in smaller companies.
Other than equity funds, there are options as well for long-term financial goals, especially retirement.
National Pension Scheme is a pension scheme that allows you to accumulate a retirement corpus. It offers various investment options, including equity, government securities, and corporate bonds.
Public Provident Fund can also be considered to achieve long-term goals. The government fixes the interest rate on PPF on a quarterly basis and it is primarily a debt instrument.
It is crucial to note that your investment portfolio should be balanced in a way that helps you manage risk and achieve your individual goals.
Portfolio Diversification
Ensure that you invest in different types of securities such as equities, debt, gold, real estate, etc. across various industries to diversify your risk. Also, do not forget to periodically review your portfolio and make changes as necessary.
Additionally, rebalance your portfolio if needed, especially if there are significant changes in market conditions or personal circumstances.
Investing your additional funds wisely is essential for attaining financial goals and achieving financial security. First, prioritise savings for emergencies and important goals such as retirement and children’s education before focusing on ‘nice-to-have’ goals like foreign vacations.
Final Words
Balancing and rebalancing your portfolio as your lifestyle and goals change is vital to effectively move towards a secured financial future.
Also, seek professional advice to balance your portfolio and achieve your goals.
