Step 1: Pause and Secure the Money
Don’t rush into investing. Park the entire amount temporarily in a liquid fund or a sweep fixed deposit. This gives you breathing space to plan.
If the money came through inheritance, complete all legal formalities—transfer of accounts, updating nominations, and ensuring KYC details are in place.Also, clear any expensive loans (like credit card or personal loans) right away. And don’t forget to protect yourself with adequate health insurance, term life cover (if needed), and an emergency fund worth at least 6–12 months of expenses.
Step 2: Understand the Tax Rules
Lottery/Prize Money: In India, lottery and game-show winnings are taxed at a flat 30% (plus surcharge and cess). The tax is usually deducted before you even receive the money.
Inheritance: There is no inheritance tax in India. Tax applies only when the inherited asset generates income (rent, dividends, etc.) or when you sell it (capital gains). The original owner’s purchase cost and holding period are used to calculate taxes when you sell.
Step 3: Use the 3-Bucket Strategy
Think of your windfall as funding the next 20–30 years of your life. Divide it into three “buckets”:
Safety Bucket (0–2 years of expenses)
- Liquid funds, Treasury bills, or short-term fixed deposits.
- Purpose: Ensure monthly expenses are always covered without risk.
Income Bucket (next 5–7 years of expenses)
Short/medium duration debt funds, government bonds, gilt funds, or senior-citizen schemes (SCSS/PMVVY if eligible).
Income Bucket (next 5–7 years of expenses)
Short/medium duration debt funds, government bonds, gilt funds, or senior-citizen schemes (SCSS/PMVVY if eligible).
Purpose: Provide steady income and stability.
Growth Bucket (10+ years horizon)
quity index funds (Nifty 50, Nifty Next 50, or a midcap index).
Optionally, a small allocation to REITs for diversification.
Purpose: Beat inflation and periodically refill the Income Bucket.
Step 4: How to Generate Monthly Income
Keep 12–24 months of living expenses ready in the Safety Bucket.
Run a Systematic Withdrawal Plan (SWP) from one good debt fund every month to your bank account—this becomes your “paycheck.”
Once a year, book some profits from equity funds and refill the Income/Safety buckets.
If markets are volatile, rely more on your debt side in the early years, giving equities time to grow.
Disclaimer
This guide is for educational purposes only. Please consult a certified financial advisor before making investment decisions, as everyone’s risk profile and needs are different.