Are you looking to invest your annual bonus for this year expecting a competitive return? It is ideal that you invest this bonus for a specific long-term financial goal for yourself or your family. How? Don’t worry we got you covered here.
What is a One-Time Investment Plan?
A one-time investment plan is a type of investment option where a lump sum investment is done at one go in a particular financial instrument for a fixed time period. An investor can invest in a one-time investment plan if he has a considerable amount of surplus funds and a high-risk tolerance.
You may also read about - Best Fixed Income Investment Options
Six Best One-Time Investment Plans in India
In case of investments, almost all instruments have a role to play depending on your expectations and goals. Time is one factor which determines which investment is best for you and which is not. Fortunately, there are investments like Unit-linked Insurance Plans that lets you segregate your investment amount into a variety of avenues, ensuring a balance of returns.
Other factors would include your comfort level with any investment. For example, equity investments have higher risk, but may offer better long-term returns, and on the contrary, a debt investment is safer but has fixed returns. So, considering all these factors here are some of the best investment plans for you to park your bonus income.
1. Equity Funds
Equity funds are less risky alternatives to direct market investments, mostly because of the diversification and professional management involved.
If you are looking to save tax for the financial year under section 80C and want to invest in equity funds, invest in ELSS or Equity-Linked Savings Schemes. Equity-linked savings schemes are pure equity funds, but they give you deduction up to Rs 1.5 lakhs under section 80C.
Ideal Investment Tenure: 5 years or more. ELSS will have a lock-in period of 3 years.
Investment Risk: High
When to Invest: Invest if you are sure that you can stay invested for a long time.
Deduction on Investment: Only on ELSS schemes, up to Rs 1.5 lakhs (Section 80C)
Tax on Future Value: After 12 months of holding period gains are exempt from tax.
Also Read - Best Investment Plans for 5 Years
2. Debt Funds
There are many types of debt funds, but for your consideration, we are only accounting the ones investing in AAA and AA-rated corporate bonds or government securities.
From their securities composition, these funds carry far lower risk than equity funds. Plus, you get the benefit of a diversity of securities in the fund. These funds also offer steadier returns but may suffer in terms of taxability.
Ideal Investment Tenure: 3 years or more
Investment Risk: Low
When to Invest: Invest if you want to invest for less than 5-year period. But you may want the tenure to be longer than 3 years for lower tax implication.
Deduction on Investment: None
Tax on Future Value: After 36 months of holding period your profits get the indexation benefit. Thus, may attract far lower taxes.
So, the tax laws consider profit from debt fund investments a short-term capital gain if you withdraw within 36 months. The short-term capital gains increase your taxable income for the financial year and attract taxes at slab rates.
Learn what is capital gain – long-term and short-term.
However, if you stay invested for 36 months, your profits from debt funds will become long-term capital gains. Tax laws require the effect of inflation on long-term capital gains before estimating tax.
3. Liquid Funds
Liquid funds are among the most useful investment options, not the best when it comes to generating the returns over a long time. But, these funds are best for saving your money from getting spent while you decide the best investment option.
Plus, minimal exit load means you can use your invested amount directly from the liquid funds to transfer to another fund. This simple option opens up huge opportunities to invest systematically for you. We will explore some of these opportunities here, but first:
Ideal Investment Tenure: Less than 3 years, unless you are using systematic investment option
Investment Risk: Low
When to Invest: When you are yet to decide about the investment plan. Or, when you want to invest your lump sum money systematically in another long-term investment.
Tax Deduction on Investment: None
Tax on Future Value: After 36 months of holding period your profits get the indexation benefit. Thus, may attract far lower taxes.
4. Liquid Mutual Funds to ULIPs
ULIPs are very tax-efficient investments. That is, they give you deduction under 80C, and tax-free maturity value plus, multiple equity and debt fund options. ULIP may be the only instrument which allows you to invest in debt and liquid funds and still enjoy the same tax benefits.
However, tax benefits only last so far as your annual premium is less than 10% of the policy sum assured. So, if you want to invest Rs 10 lakhs in ULIP you will need a sum assured of Rs 1 crore. But that is only when you are investing Rs 10 lakhs all at once.
Instead, here’s what you can do using liquid funds as an alternative channel:
i.Divide the bonus into five equal parts; i.e. Rs. 2 lakhs in this case
ii.Invest Rs 8 lakhs in a liquid fund
iii.Start investing in a ULIP plan with Rs. 2 lakhs
iv.Submit advance withdrawal requests for Rs. 2 lakhs with the liquid fund a few days before the premium due date for the policy
Channelling and automating your investment through the liquid fund will give you the following advantages:
a. You get an annual tax deduction under section 80C for the next five years
b. With ULIP you can stay invested for a long time
c. You can withdraw your money partially after five years
d. The minimum maturity period of a ULIP can be five years; for example, Invest 4G plan from Canara HSBC Oriental Bank of Commerce Life Insurance.
Also, you defer your taxes on your investment in liquid funds as you spread your withdrawals over five years With a ULIP plan like Invest 4G, you can invest in a mix of equity and debt funds and use dynamic portfolio management strategies. These strategies allow you to manage your portfolio automatically and exploit market opportunities without taking extra risk. Plus, ULIPs are a great investment option for long-term goals.
Also Read - How to Invest Money?
5. Liquid Mutual Fund to Equity Funds
Although equity funds carry lower risk than direct equity investments due to diversification, they are still volatile. That is why you should use a systematic approach to invest your money in equity funds. Systematic investment approach will help you benefit from rupee cost averaging in the volatile market.
If you are a regular investor or investing out of your regular income, you can easily create a systematic investment plan or SIPs for investing in an equity fund. But, if you want to allocate your bonus income, you can do so with the following steps:
i. Find a suitable equity fund you want to invest in
ii. Park your entire bonus into a liquid fund of the same family
iii. Submit a systematic transfer request to the liquid fund so that a fixed sum of money goes to equity fund at regular intervals
iv. Remember the minimum holding period of units you buy in equity fund are:
v. 12 months for normal equity funds for tax-exempt future value
vi. 36 months for ELSS funds
6. Liquid Mutual Funds to Other Investments
You can create similar investment plans out of liquid funds, such as to a deferred annuity plan, to NPS or PPF. If you are already operating an NPS tier-I account you can claim an additional deduction of Rs 50,000 over the 80C limit of Rs 1.5 lakhs.
Few other notable investments are senior citizen savings scheme which can be a gift for your parents. Also remember, every investment option has its reasons, ideal investment period and different risk-return level. So, make sure you go through all the plans to find the one which makes more sense to you.
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Four Benefits of Making One-Time Investment
1. Better Capital Growth
Your returns depend upon the market performance. With SIP or recurring payments, the amount invested later doesn’t get the time to adjust to market conditions. Lump-sum amount invested via one-time investment stays in the market for a longer duration and thus provides opportunity of higher capital appreciation.
2. Higher Returns in the Long-term
Lump-sum investments attract higher returns due to the principle of power of compounding. This becomes possible because your money stays invested in the market for a longer duration of time.
3. Hassle-free
One-time investment can be convenient as you do not have remember or worry about due premium payment dates. You invest the entire amount at the commencement of the policy.
4. Low Transaction Charges
In one-time investment, the transaction charges involved will only be one-time. You do not have to pay the associated transaction charges every time you invest like other instalment-based investments.
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