What Should You Do With Surplus Money?

Posted On Wednesday, Oct 07, 2020


Perhaps you received a bonus from your employer.

Or an unexpected raise for a job well done during these difficult times.

Perhaps you landed a few remote projects that resulted in a sudden lumpsum amount in your account.

Now your expenses are taken care of, so you don’t need to worry about those.

But what should you do with this sudden surplus amount that you have?

Those online sales may urge you to go on a pointless shopping spree, but they don’t faze you much.

As a disciplined investor, you worked hard to earn that money, and now you know that it’s time for the money to pull its weight.

So what should you do with surplus money?

Invest it into a wealth creation avenues.

We’ve written to you in the past about how SIPs are an excellent way to invest in Mutual Funds.

We stand by that of course, but SIPs are not the only way.

Lumpsum investing, is the second strategy and may prove to be quite useful. Especially if you are unsure of being able to make monthly SIP payments consistently.

Lumpsum Investing Vs SIPs: A step-by-step example

Let’s look at an example.

Let’s say I want to achieve a goal of Rs. 20 lakh rupees in 5 years.

Using our wealth creation calculator*, I key in these details.

After keying in my details I click on calculate. I get the present investment amount required in rupees. Here are my results for investing via SIP:

If I were to start a SIP I need to invest a mere 25,254 rupees per month to achieve my goal.

But what if I wanted to invest a lumpsum now instead of starting a SIP?

The wealth calculator also gives me the required lumpsum amount that I need to invest now to get 20 lakhs in 5 years.

I need to invest 11.84 lakh rupees today across various funds to achieve my goal.

So I need to simply park this amount for 5 years, I would reach the same goal as with a 25000 rupee SIP for 5 years as per the wealth creation calculator.

Now which method is better?

This choice between SIPs and lumpsums completely depends on every investor.

Some may find a monthly investment of 25000 rupees through a SIP more palatable compared to 10+ lakhs of lumpsum.

It depends on your preference, are you sure you can invest 25000 rupees every month for the next 5 years?

Or can you park that 10 lakh rupees today and let such investments do all the work?

Your earning potential may be lower in the future.

If you’re thinking that you will anyway have a monthly income from your job or business for the next 5 years, it may not.

A salary for example is no longer a dependable stream of money.

We never know what life may hand to us - job losses, retirement, health issues and caring for your family.

There may be umpteen reasons but there is no guarantee that your earning potential will not decline in the future.

In fact, investors sometimes panic and make poor investment decisions during uncertain events such as during the current pandemic situation.

They redeem or pause their SIPs and exit their investment plans well before the time frame is completed.

Not only are they unable to realize their financial goals, they also become disillusioned in the process.

This is why, investors can consider lumpsum investments too.

Next time you get that bonus, be the smart investor and consider your options. Our wealth creation calculator is a great tool for you to tinker with, and can help you gain clarity on your financial goals.

Editor's note: To know more about lump sum investing write to us at [email protected] Or give us a missed call at +91-22-68293807 and we will call you back. We will be happy to assist you.

*The Goal Planner / Calculator is based on assumed rate of returns for the asset classes which is purely derived out of mathematical calculations on a best effort basis for illustrative purpose only. The Goal Planner / Calculator is not based on any judgments of the future return of any asset classes and should not be construed as promise on minimum returns and/or safeguard of capital. The Goal Planner / Calculator alone is not sufficient and should not be used for the development or implementation of investment strategy. There is no warranty about the accuracy of the Goal Planner / Calculator. The Goal Planner / Calculator should not be constructed as investment advice / tax advice or as a solicitation to invest in schemes of Quantum Mutual Fund. Past Performance may or may not be sustained in future. Quantum AMC is not guaranteeing or promising or forecasting any returns of any asset class. The investor is advised to review and understand the investment objectives, risk category, risk factors of each scheme for his / her investment allocation and to consult his / her investment advisors before making any investments. Quantum Mutual Fund / Quantum AMC shall not be liable for any loss, directly or indirectly that may arise to an investor as result of investment through this Goal Planner / calculator.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – www.QuantumAMC.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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