Investment recommendations for the beneficiaries of Seventh Pay Commission announcement
In a big bonanza for 1 crore government employees and pensioners, the Union Cabinet today approved the Seventh Pay Commission’s recommendations. Effective January 1, government staff salaries will go up 23.5 per cent.
The Seventh Pay Commission’s recommendations also influence wages of employees of state-owned firms, local bodies and 29 states. Including pensioners, analysts say that 3 crore people will be directly impacted by the Pay Commission’s recommendations.
So if you are among the beneficiaries, have you decided where you are going to spend the money?
As your income stream is going to increase, instead of spending the money hastily, you should do proper financial planning, say experts.
“Do a proper analysis of your financial situation, look for the gaps which are preventing you to reach your goals and try to fill them,” says Anil Rego, CEO and founder of financial advisory fund Right Horizons.
If you have a home loan running, you can consider reducing it by increasing the equated monthly instalment (EMI), says Mr Rego.
This will reduce your overall cost of borrowing and strengthen your financial position in the long run. If you have any other high cost debt, you can consider getting rid of it.
Also, a part of the salary hike can go towards increasing the SIPs or systematic investments plans in mutual funds. It will help you to meet your long-term goal likes retirement or children’s education/marriage.
The lump sum that you may receive in the form of arrears can be invested in a short-term debt mutual fund and transferred systematically to equity mutual funds, say experts.
One can also consider using the money towards increasing life insurance cover, said Mr Rego.
If you have any short-term goal like buying a car in the next one year, you should keep the money in more liquid and relatively safe debt instruments like fixed deposits (FDs).
Suresh Sadagopan, Founder of Ladder7 Financial Advisories says “A lot of people wrongly believe that real estate can only give good returns over long period of time.”
“Investing in property should be seen in conjunction with the overall portfolio. If a person already has a property, it may not be a great idea to invest in real estate further given the illiquidity and low rentals,” he added.
“Invest some portion towards skill enhancement so that even after retirement you are able to generate cash flow for yourself,” says Vishal Dhawan, founder and chief executive officer of Plan Ahead Wealth Advisors.