photo by pshutterbug

Imagine if you had Rs 100,000 and had the full freedom to decide where to park (invest) it — where would you put it? Rewind — last quarter of 2007, no doubt it would’ve been the stock market calling your money. But hey, considering the bearish sentiments in the stock market today you’ve got to carefully evaluate your investment decisions.

Here’s how you could look at investing the amount:

CASH IS KING

With the inflation rate at 12.40% (approx as on Aug 28, 2008) you’re gonna have higher outflows in your monthly home budget. Make sure you have about 3-6 months of your living expenses set aside in either:

(1) A savings account that’s linked to a fixed deposit. This ensures you enjoy a slightly high rate of interest (as compared to a normal savings account) along with the liquidity of a Savings Account. And hey, you don’t even pay any penalty to access your funds which otherwise is the case when you access your funds in a normal Fixed Deposit account.

(2) A fixed maturity plan (FMP) of short durations — where the tenure ranges from 1 month to 5 years. They aim to generate returns that are indicated at the time of the launch of the scheme. FMPs are closed-ended, debt-based funds with fixed dates of maturity. An FMP will give you a higher return than the savings bank account, and usually offer better returns after adjustment for tax (indexation benefit) thus making FMPs an attractive investment avenue compared to fixed deposits (FDs).

PAY OFF YOUR LOANS

This is a simple no-brainer! Interest rates are going up through the roof, EMI/tenure has increased on several occasions in the last few years. If you’ve got some extra cash, pay off as much of your loan as possible. Wait, you’ve got credit card debts or personal loans? If yes, first pay off those. They are more expensive loans when compared to your home loan. Hopefully, after paying off your credit card outstanding and/or personal loans if you’re still left with some money, then look at paying off your home loan.

EXCHANGE TRADED FUND (ETF)

You could invest in some good blue-chip stocks. However, if you don’t want to take the risk of picking the wrong stocks you could invest this money in an exchange traded fund (ETF). An ETF invests in stocks in the exact proportion as the index it mirrors. If the Nifty grows 15% annually in the next 5 years, so will your money.

INVEST IN MUTUAL FUNDS

The roller coaster ride in the stock market where nowadays 300-700 points up or down are seen easily  gives you goose bumps. Well, you could look at debt-based mutual funds. You’ll get a consistent, but low returns when compared to equity based mutual funds.

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