OPTION 1 REDUCE YOUR DEBT BURDEN

Before you start investing your surplus, pay off your debt. It could be outstanding credit card payments, car loan, personal loan, etc.Not only will it bring psychological relief, you'll also save on the interest outgo. Start settling your debt in the order of interest rates. The ones with no tax benefits and higher interest cost should be paid off first. Make sure you know about the pre-payment charges. Loans that offer tax benefits--student loans and home loans--should be the last on your list.

OPTION 2 FOR ADDITIONAL TAX BREAKS, INVEST IN NPS

Upto `50,000 invested in the NPS, under the new Section 80CCD (1b), can be claimed as deduction, over and above the `1.5 lakh investment deduction limit under Section 80C. At the highest tax bracket of 30%, this could mean a savings of `15,000 on your next tax bill. Under NPS, it is mandatory to buy an annuity plan with 40% of the corpus at maturity. The remaining 60% can be withdrawn. Until last financial year, this 60% was fully taxable at marginal rates. But this year onwards, the Finance Minister has made withdrawals up to 40% of the corpus tax exempt, adding to NPS' appeal.

OPTION 3 INCREASE YOUR EQUITY EXPOSURE

The Sensex has fallen around 12% in the past one year, and this provides an opportunity for longterm buyers. You can invest your lump sum in a debt fund and use a systematic transfer plan to move the money gradually into equity funds.You could also earmark this corpus for a goal that is 5-10 years away. For instance, you can use the money towards increasing your down payment for an asset purchase and reduce your future loan burden. Even if the returns are in line with the index, the compounding effects of a 12-15% tax-free growth can really generate huge returns over time.

OPTION 4 INVEST FOR YOUR DAUGHTER

If your daughter is less than 10 years old, Sukanya Samriddhi Yojana (SSY) is the best debt option to invest in for her future. At 8.6% yearly compounded rate, this is among the highest paying small savings schemes. Investment in SSY is tax deductible under Section 80C, and you can invest up to `1.5 lakh per financial year (minimum is `1,000). Also, the principal invested, the interest accumulated and the payout are all tax-free. However, the scheme lacks liquidity. You have to stay invested in the SSY till your child turns 21. Premature withdrawals are only allowed after the girl turns 18 and you can withdraw only up to 50% of the corpus.

OPTION 5 BUILD A CORPUS FOR BUYING YOUR HOUSE

An extra `50,000 in tax break has been introduced for first-time home buyers where loan amount is less than `35 lakh and the property's worth is not more than `50 lakh. Use the bonus to increase the size of your down payment. It will bring down your loan requirement, which means lower EMIs and, if it falls below `35 lakh, there's the extra tax benefit as well. Put the bonus in an income fund if your purchase is less than a year away. For more than a year, invest in equity funds where the returns are tax-free after one year.

OPTION 6

BUILD AN EMERGENCY CORPUS

If you do not have an emergency fund, you should use your bonus to build one. Given that it is an emergency fund, you should invest the money in highly liquid options such as shortterm debt funds. The corpus will help you manage sudden, unplanned expenses--medical emergencies, for instance. It will help you avoid last-minute scrounging for money, fire sales or taking bridge loans to tide over the situation.

OPTION 7

INVEST IN YOURSELF

It's okay if you cannot decide on how to utilise the money right away. "Salt away the money in a liquid fund for a couple of months, while you think how best to utilise it. It will afford you some cooling-off period and also prevent you from frittering the money away in a hurry," advises Jayant Pai, CFP and Head, Marketing, PPFAS Mutual Fund.However, keep in mind that financial instruments are not the only investments that fetch returns."Spend on enhancing your skills, join a course that can improve your earning levels," says Bhuvana Shreeram, Head, Financial Freedom Golden Practices. Such an investment will not only help you get a fatter bonus package, but fetch you regular returns throughout your life.