Investment is a tricky business. There are so many ways to invest your hard-earned money that you can find yourself at a loss selecting the products that are suitable for your needs and allocating funds appropriately to maximize the ROI. However, even if you accomplish this feat and find some of the best short-term investments, you are bound to encounter another challenge down the road, which is questioning yourself on what to do when your investments are close to maturity.
Since both, risky and safe investment options work differently, we will discuss how to deal with different types of investments when they are close to maturity or about to meet your financial goals:
Fixed Deposit is a common answer to the frequently asked question, “Where to invest money?” as it’s extremely safe and flexible. However, it has a low yield which is why you must invest wisely. For instance, if yours is a tax-saving fixed deposit then when it matures, you may want to renew the account if it affects your tax liability under section 80C of the Income Tax Act. However, if you have already made other arrangements for tax-saving purposes, then you can withdraw the amount and invest in other investment vehicles. Besides, the 5-year lock-in period can be highly restrictive for liquidity.
Public Provident Fund (PPF)
PPF is another popular investment vehicle that’s commonly availed by salaried professionals. If you have invested in it yourself, and the lock-in period of 15 years is about to be over, then you can reinvest if you want to avail tax benefits under section 80C. Although, the only way you can do is by extending it in a block of five years.
Debt mutual funds and equity-based mutual funds come with different risks and rewards. The former is less volatile than the latter so it can be kept on your portfolio if you seek stable returns. On the other hand, equity-oriented mutual funds go through rigorous market changes. The yields can be exceptionally high (12% to 20%) if you invest for a long-term i.e. at least five years.
Things to keep in mind:
- Safe investment options are generally recommended when you have financial obligations and/or you have a low-risk appetite. However, if you are a young investor and your short-term investments have matured, you should allocate a small portion of your portfolio for higher risk investments to generate high yields.
- When an investment meets its goals, it’s a good time to analyze your portfolio. If there are certain markets and investment avenues that you haven’t quite tapped into yet, you can use the opportunity to diversify.
- During asset-reallocation and re-balance, always keep taxes in mind. This is because some investments offer tax befits and some don’t, and you want to keep the liability to the minimum.
One of the key qualities of a shrewd investor is that they always keep an eye on their portfolio so that they can reallocate funds in accordance with the changing market conditions. So, when your investments are about to reach maturity, make sure that you have a reinvestment strategy in advance.