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| August 22, 2022

6 Smart Ways to Invest Your Income Tax Returns This Year

A majority of taxpayers look forward to receiving their tax refunds so that they can put them to good use like investing the money in an ELSS scheme or stocks where they can get great returns. Spending the tax refund on random expenses is a good way to utilize the cash, but investing it for wealth creation is a great way to make a sound investment decision. Getting a tax refund is a good way for investors to improve their finances and make the most of their finances. It is easy to feel that the tax refund is free money, but it is something you’ve earned over the years and must not be splurged on unnecessary things that do not count as an investment for future exigencies. Whether your tax refund amount is sitting idle in your bank account or you’re still waiting for the same to reflect in your account, here are six smart ways to invest your tax refund money this year and put your tax refund to work for you.

1. Create Emergency Funds

Emergencies like medical expenses or any other emergency expenditure do not come with prior notice. Hence, it is always beneficial to park your tax refunds in building an emergency fund. It should ideally be equal to at least 3-6 months of your monthly income. This way, you will be ready to face any adversity that might come your way in the future. How much you should save from your tax refunds for creating emergency funds depends on your financial situation, cost of living, risk tolerance etc.

2. Pay-off Existing Debt

Paying off all your existing debt is another smart way to utilize your tax refunds. If you have a high-interest loan, then paying it off by using your tax refunds helps you make your money management decisions more wisely. If you have multiple loans, you can prioritize which high-interest loans you need to pay off first so that it can help you save money down the road in interest charges. Using a tax refund amount to pay off high-cost debt means lowering your monthly interest payment.

3. Invest in Mutual Funds

To make your future financially secure, you can invest the tax refund in mutual funds, one of the best ways for saving tax and diversifying your portfolio. You can invest in a stock that you believe has high growth potential. Another best way is to park your tax refund in ELSS mutual funds. By doing this, you get the dual benefit of tax deductions and wealth accumulation over time. You can simply consult a financial advisor to build a portfolio that helps you invest in stocks by understanding your personal risk tolerance and financial conditions. Investing in stocks is a better way to park your money somewhere where you can take this calculated risk and make money in the long run.

4. Create Retirement Corpus

During the retirement phase, you only need a comfortable and financially stable retirement. For this, you can build a retirement corpus by opening a tax-saving fixed deposit or FD that allows you to invest and claim tax deductions under section 80C of the Income Tax Act. Opening a fixed deposit account will help you in boosting your retirement balance. Even if you have a 401(K) from your current employer, it is always wiser to open your own individual retirement account (IRA) to supplement that plan. Opening your own IRA is one of the best ways on the road to retirement readiness if you want to have financial independence and a stress-free life during your retirement phase.

5. Buy an Insurance Plan

Buying an insurance plan is one of the important aspects that help you safeguard your future. Whether a life insurance plan, home insurance plan or term insurance plan, investing in buying an insurance plan is one of the sound decisions, you can make to make your future safe and secure.

6. Park the Money in Savings

Use your tax refund to increase your savings by depositing the money in a savings account. The interest income generated from savings account deposits is among the tax saving investments other than 80C. If you maintain multiple savings bank accounts in different banks, the total interest is counted and taxed under income from other sources. Set aside a small and achievable amount in the savings account at first and then continue putting the funds in the account to secure your future financially.

Tax refunds are one of the major returns that you can receive in a year. It is crucial to make the most out of it by investing the funds to get great returns. Therefore, irrespective of the sum of money you get from tax refunds, you might consider investing your money in any of the above-mentioned ways. Muthoot Finance is India’s most trusted financial services brand that has a lot of wealth building services to cater to your various needs like life insurance plans, health insurance plans, property insurance and many other services.

At Muthoot Finance, you can speak to our investment experts to redirect your tax refunds in a smart way and invest your money for better returns. Visit your nearest Muthoot Finance branch to know more.

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