Five Smart Options To Deploy Your Tax Refund

Those who have filed their taxes on time would have mostly received their tax refunds by now. With festivals around the corner, it would be only natural that this excess money could either be lying idle in your bank account or be spent away in leisure activities. 

This piece will explore some smart options that could help your money to make a difference by putting tax refund to a better use. 

1. Repay high-interest debt - Tax refund can be effectively used to discard bad debt such as credit card, personal loan or car loan. Repayment of debt should be primarily done on the basis of interest rate, which means that loans with highest interest rate should be repaid first, followed by others. (Sequential order of loan repayment has already been outlined in our earlier blog).
2. Boost you business funds - If debt is not a concern for you at the moment, but it is the new business venture that is occupying your thoughts then tax refund could prove to be a great way to build business funds. It is prudent to divert your tax refund money towards business opportunities. Although such diversions might not be big enough for your business but it will at least lessen the gap by some margin.
3. Big plus for retirement - Apart from repaying debt and business funds, tax refunds can also become an effective tool to bolster your r
   etirement savings. Money received in your account can immediately be transferred to funds that are meant for your retirement. By utilising tax refund towards retirement, you can reach your goal not only sooner, but it will also grow at an incredible pace to leave you with substantial savings than intended.
4. Prepare better for emergencies - It is common that emergency corpus gets used up in fulfilling meagre or urgent things. Those requirements might not be urgent in nature but the ease of accessibility to emergency funds lead to its erosion over a period of time. During such times, income tax refunds could come handy to make good of the shortfall to your emergency corpus. 
5. For an extra mortgage payment - It is possible that your income tax refund could be too meagre to be used towards the afore listed goals. In such a case, it is recommended to pre-pay one or more of your mortgage payments, which will directly bring down your principal outstanding amount. Such small measures, when implemented every year could help bring about a visible decrease in the interest outgo and tenure of your mortgage loan. 

Lastly, do not forget to reward yourself by spending a part of your tax refund towards leisure activities. But take care that you do not overdo it and keep such expenses restricted to a set percentage of your tax refund.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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Seven Reasons Why Investing On Your Own Could Backfire

Periodic access to stock market information and motivation to take charge of own financial future might encourage many investors to take a dive into direct investing. At times, investors debuting in stock markets or mutual funds might even hit beginner’s luck, and everything appears to be in place, until reality strikes.

It is crucial to understand that investing does not end right after writing a cheque towards a fund or placing an order online, rather it begins there. There are various aspects associated with investing such as periodic reviews, monitoring and knowing what-to-do and when. Few of the common errors that direct investors often make while investing are listed below. 

1. Losing sight of crucial goals - New investors often get carried away by bigger goals, which put them at risk of neglecting smaller but basic goals such as adequate insurance cover or emergency corpus. 
2. Disconnect between objective and investments- Every investment has an underlying investment objective or financial goal, but problem occurs when an investment product is a misfit for such an objective. Like equity stocks or mutual funds are not the right place for emergency corpus. Similarly retirement corpus cannot be built through debt vehicles alone.
3. Clueless about investment strategy - Each individual has a unique financial goal and risk appetite, which is paramount in developing an appropriate investment strategy. However, most of the direct investors place greater emphasis on products and end up accumulating more than they actually need. 
4. Placing lot of significance on historical returns - Even when most of the mutual funds categorically specify that ‘past performance is no guarantee of future returns,' most investors find themselves swayed away by stellar fund performances. Apparently, oversight of other parameters cost those investors dearly.
5. Herd mentality and peer influences - Direct investors are vulnerable to peer influences and herd mentality, i.e., they endorse the acts of others and try to follow the same path. This happens mostly in offices or professional and social groups as any investment strategy followed by one instantly becomes a handbook for others. In the process, investors forget about the differences that exist between risk appetite, life goals and existing financial circumstances between themselves and peers.
6. Improper diversification - Investing on own might even lead to under or over diversification, which means that a portfolio lacks the right mix of assets. Investing into too many funds with the same objective or putting all funds into real estate can lead to a skewed portfolio and so the returns.
7. Loose ends - As said earlier, investing process ends only after an investor reviews and monitors his/her portfolio. Leaving funds invested in a product for long could defeat the whole purpose of investing itself for lack of adequate returns. 

Taking swift decisions on how to manage investments such as booking profits and re-investing in better avenues are crucial, without which, an investment is not really an investment in a true sense.

Best way to counter these challenges is to seek professional advice as doing everything all alone can become a daunting task and might not fetch desired results.

About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.

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