Josephine Norton
Surplus money is any amount of money that’s left over after accounting for all your monthly expenses. This could be a year-end bonus, a salary increment, or a cash gift from a loved one. While storing surplus money in a bank savings account is a good start, the low returns on these accounts mean that your money loses value in front of inflation. This is why it is important to consider other options that can offer higher returns, such as investing in stocks, mutual funds, or alternative assets.
| Characteristics | Values |
|---|---|
| Definition | Excess funds that are not needed for immediate short-term cash requirements |
| Other Names | Carry-Over Funds |
| Sources | Bonuses, salary increments, cash gifts, windfalls, and inheritances |
| Where to Invest | Mutual funds, stocks, alternative assets, gold, cryptocurrency |
| Investment Options | Lump sum or Systematic Investment Plan (SIP) |
| Advantages of Investing | Outperform inflation, grow wealth, generate long-term gains, diversify portfolio |
| Disadvantages of Saving | Average savings account interest rate is lower than inflation, leading to loss in savings value |
What You'll Learn
Mutual funds
A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. This allows individual investors to gain exposure to a professionally-managed portfolio, potentially benefiting from economies of scale while spreading risk across multiple investments.
There are different types of mutual funds, such as equity mutual funds, debt mutual funds, and hybrid mutual funds, catering to various risk appetites and financial objectives. They are also known by the kinds of securities they invest in, their investment objectives, and the type of returns they seek.
However, there are some drawbacks to investing in mutual funds, including fees, commissions, and other expenses that can reduce overall returns. Mutual funds also require a significant portion of their portfolios to be held in cash to satisfy share redemptions, which can result in a "cash drag" that earns no return.
Overall, mutual funds provide a versatile and accessible option for those looking to diversify their portfolios and benefit from professional management.
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Stocks
Investing in stocks is an active form of investing, which means that you are in control of buying and selling decisions. This requires a good understanding of the market and an ability to assess your risk tolerance. It is also important to consider your investment goals and time horizon. For example, if you're a young investor with a long time horizon, you may be more comfortable investing in riskier stocks with the potential for higher returns. On the other hand, if you're closer to retirement, you may want to focus on more stable, established companies with a track record of steady growth.
However, it's important to remember that stocks are subject to market volatility and can be more prone to risk than other types of investments, such as mutual funds. As such, it's always recommended to consult with a financial advisor or wealth coach before investing your surplus funds in stocks, to ensure that you're making informed decisions that align with your financial goals and risk tolerance.
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Gold
Ultimately, investing in gold depends on your circumstances and market outlook. It is essential to consider your financial goals, risk tolerance, and overall strategy before making any decisions. Consulting with a qualified financial advisor is always recommended.
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Cryptocurrency
A surplus refers to any amount of money left over after accounting for all your monthly expenses. This could be in the form of a bonus from work, an inheritance, or any other windfall.
When it comes to investing surplus money, there are a few options to consider. One option is to put the money into a savings account. While this is a secure option, the low returns offered by savings accounts may not keep up with inflation, resulting in a loss of value over time. Another option is to invest the money in stocks, which can offer higher returns over time but require time, patience, and knowledge of the market. Mutual funds are also a popular choice for investing surplus money, as they offer diversification and professional management. Additionally, alternative assets such as P2P lending and asset leasing can provide solid returns without the need for a middleman.
Overall, investing surplus money can be a great way to grow your wealth and secure your financial future. By choosing the right investment options and staying patient and disciplined, you can work towards achieving your financial objectives.
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Direct equity
However, investing in direct equity requires time and patience. It is also important to understand that investing in the stock market is an active form of investing where all decisions of buying and selling are taken by you. So, you must have sound knowledge of the market. Moreover, you need to assess your risk appetite and accordingly invest in large, mid, or small-cap companies in keeping with your goals.
Mutual funds are of different types (such as equity mutual funds, debt mutual funds, and hybrid mutual funds) that cater to various risk appetites and financial objectives. They offer an advantage over direct equity as they do not require you to have any prior knowledge of the market. You also do not need to spend time evaluating the performance of the market. All decisions are taken by the fund manager on your behalf.
Overall, direct equity investments in the stock market can be a great way to grow your surplus money, but they require time, patience, and sound knowledge of the market.
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Frequently asked questions
A surplus is any amount of money that is left over after accounting for all your monthly expenses. This could be a bonus from work, an inheritance, or any other windfall.
If you put your surplus money in a savings account, it will lose value in front of inflation. Therefore, it is important to consider other options that can offer higher returns.
Some good investment options include stocks, mutual funds, alternative assets, gold, and cryptocurrency.
Alternative assets are non-traditional investment options like P2P lending and asset leasing. They are generally up-and-coming or have only recently been regulated.
The best way to invest your surplus money is to talk to a trained financial professional or advisor first. They will be able to help you navigate the many investment options available and determine which is best for you.
