7 Best Ways To Productively Deploy Your Diwali Bonus
Oct 09, 2019

Author: Aditi Murkute

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(Image source: www.freepik.com)

The Navratri and Dussehra festivals, setting the festive season mood now have everyone's eyes on the approaching festival of lights - Diwali!

The five-day Diwali celebrations involve illuminating the household with decorative diyas (oil lamps) or candles, hanging up handmade kandils (lanterns), streamers of fairy lights, grand display of fireworks and crackers to signify the elimination of darkness and movement towards light; hope over despair; good over evil; and knowledge over ignorance.

The mythological stories about Diwali vary regionally in India's diverse cultures. Yet, all of them point to joy, celebrations; the importance of knowledge, self-enquiry, self-knowledge, self-improvement, and seeking the right path. It is one of the most important festivals for most people because of the festive fervour and Diwali bonus.

Every year most of us look forward to a Diwali bonus as it is a monetary reward received from the company besides a salary. This bonus helps in dealing with additional expenses like buying gifts and cooking feasts for loved ones, festive purchases, and meeting your regular expenses.

It's a good thing to celebrate your festival with the bonus you receive; but, in my view, one would be better off deploying it mindfully instead of spending your entire Diwali bonus, i.e. invest it wisely for your long-term financial wellbeing.

[Read: Are You Paying Attention To Your Financial Fitness?]

A bonus can be utilised as a feeder to your fodder to accomplish your vital envisioned goals (buying a dream home, children's education needs, their wedding expenses, and your own retirement) faster.

Before I explain the different investment avenues you could consider to deploy your bonus, here are a few points to remember while investing:

  1. Do not rush into investing; undertake thoughtful research, know the investment product well, and adopt a holistic approach.

  2. Do not speculate. It can be hazardous to your wealth and health.

  3. Never invest with borrowed funds, except in case of real estate where you can opt for a home loan at an attractive interest rate.

  4. Never use the contingency funds you've put aside as part of your savings to meet the requirement on a rainy day, i.e. in case of exigencies.

  5. Avoid investing without a plan in place or there are chances your financial plan may go off the course.

  6. Select an investment adviser who can put forth your interest before his/her own.

  7. You can deploy your Diwali bonus to Step-up your SIP instalments.

[Read: How Stepping Up SIP Every Year Gives A Boost To Your Wealth]

It is essential that you decide thoughtfully, being aware of your own requirements and needs like reducing debt burden, early retirement, save tax, etc.


 
  1. Invest in a Fixed deposit:

    If you are risk-averse by nature and wish to generate wealth securely and steadily, a bank fixed deposit (FD) is a worthy investment avenue.

    Here are a few benefits of investing in bank FDs:

    • Worthy option when planning for short-term financial goals and contingency needs

    • Thoughtful selection of plans/options (cumulative and non-cumulative, i.e. the ones that offer regular interest pay-outs viz. a quarterly payout or monthly payout) can help address your liquidity needs

    • Earn a higher rate of interest instead of keeping funds in a savings bank account

    • A 5-year tax saver FD can even help you in tax saving

    • A bank FD can be booked in a few minutes

    • You can prematurely encash your bank FD or take a loan against the FD when you are in dire need of funds

    Be wary of banks that offer an extraordinarily high rate of interest. Keep in mind that a higher rate of return comes with high risk.

    Similarly, you can even consider Recurring Deposit (RD) if you are a risk-averse investor. This will add to your financial security, earn a fixed and higher return vis-a-vis a savings account.

    However, remember that the interest earned on the RD may not be subject to tax deduction at source (TDS), the interest is taxable.

  2. Invest in Mutual funds:

    A productive investment avenue such as mutual funds can enable you to multiply your wealth and counter inflation over a longer period of time that allows you to invest across categories (equity and debt)

    • Diversification (which is the essence of investing);

    • Professionally managed by the fund manager and their investment team who have the expertise and wide experience in capital markets and investing

    • Have a lower entry-level -- you can start investing as little as Rs 500 in mutual funds

    • Facilitate liquidity

    • Offer innovative plans (Direct Plan and Regular Plan) and services (SIP/STP/SWP) for you, the investor

    Investing via a SIP (Systematic Investment Plan) is better than investing a lump sum, as its rupee-cost averaging feature helps in dealing better with the volatility of markets along with the power of compounding to help you grow wealth.

    SIP or Systematic Investment Plan in a mutual fund scheme(s) is a promising mode of investing in mutual funds diligently for your loved ones, which can contribute to their long-term financial goals.

    Similarly, you can opt for a Systematic Transfer Plan (STP). Under STP, you can invest the lump sum amount in a fund that you can transfer at regular intervals systematically in a piecemeal manner into another mutual scheme (as decided by you) of the same mutual fund house.

  3. Invest in a Medical and life insurance cover for yourself or family:

    As you know, the cost of healthcare is on the rise. And today's lifestyle invites more risk to one's financial health. So, if you haven't optimally insured yourself or family, you can gift them a health and life insurance cover by paying the premium, it would be a valuable gift.

    As far as possible, do not merge your insurance and investment instruments, keep them separate. For life insurance, consider a term plan, and for health insurance needs a medi-claim policy with worthy features, as the inflation on medical care is skyrocketing.

  4. Invest in gold:

    Gold has always carried high emotional value, as it is passed on to generations and strengthens bonds. Gold symbolises wealth and holds religious significance; it's a mark of Goddess Lakshmi. One such auspicious day to buy gold is Dhanteras or Dhanatrayodashi, which is the first day of Diwali.

    Gold as an asset class is important because of:

    • It has proven itself to be symbolic of wealth that carries immense value.

    • Highly liquid asset.

    • Can deliver better long-term, risk-adjusted returns.

    • An effective diversifier than other commodities.

    • Outperforms in low inflation periods.

    • Gold has lower volatility.

    ​Note that investing in gold in paper form (Gold ETFs, Gold saving funds or gold sovereign bonds) can prove to be more effective. One should consider allocating at least 5-10% of your entire investment portfolio to gold and holding it with a long-term investment horizon will prove to be sensible and a smart investment strategy.

    [Read: How Gold ETFs Have Rewarded Investors Handsomely Over the Last One Year]

  5. Pay-off/ reduce your debt burden:

    Having a debt overburden can prove to be bad for your financial and overall well being along with less or no money left to save and with. Hence, when you get a windfall income like a Diwali bonus, utilise it to prepay your loans - partially or in full. By doing this you will reduce/ clear your debt and will save on a lot of interest payments and improve the quality of your life, allowing you to save and invest more.

    Plus, your credit score will also improve, as your credit score reflects your creditworthiness and credit behaviour. If your credit score is low, it limits your access to availing loans when you need it the most. Therefore, maintain a healthy credit score of at least 750 and above at most times so that you get to access loans in future at the best rate.

  6. Boost your emergency fund:

    Many people do not maintain a contingency fund diligently and dip into it for other expenses, thereby facing both financial and emotional trauma during harsh or extraordinary circumstances.

    So, having a rainy-day fund for life's unexpected, unpleasant surprises like the loss of a job, a medical emergency in the family, or any other form of unexpected/contingent expenses with adequate reserve is equally important.

    Sensibly deploy a portion of your Diwali bonus to build a contingency fund, also known as a rainy-day fund. It is advisable to set aside about 12 months of your regular expenses, including EMIs in a savings bank account and/or you can also opt for a sweep in the account, Flexi deposit, liquid funds or overnight funds if you desire a better rate of return.

    [Read: Have You Built A Rainy Day Fund Wisely?]

  7. Engage in prudent tax planning:

    Taxes are integral as it is a constitutional duty that should not be ignored. Always ensure that you discharge this legal responsibility rightly and consider it a moral responsibility too. Hence, when you receive a windfall income such as Diwali bonus, do not ignore taxes, instead, engage in prudent and holistic tax planning exercise.

    Do invest in tax-saving investment instruments such as Public Provident Fund (PPF), 5-Year tax saver bank FD, Senior Citizen Savings Scheme (SCSS), Equity Linked Saving Schemes (ELSS), pension funds, and insurance among others under Section 80C of the Income-Tax Act, 1961

    Additionally, avail of other available deduction under the Income-Tax Act 1961 by opting for a housing loan, education loan, and opting for health insurance to avail a deduction under Section 80D, amongst a host of other provisions for tax planning.

    Avoid procrastinating and resorting to sub-optimal utilisation of tax saving options. An efficient approach to tax planning will not only ensure long-term wealth creation, but it will also result in the efficient use of your money.

Conclusion

With Diwali around the corner, I hope that when you receive your Diwali bonus you will use it wisely while celebrating the festival to illuminate your financial wellbeing and safeguard your financial future.

Deploy your bonus money including the cash gift wisely so your dreams/financial goals can come true. Do set aside some for the future. Just remember that idle money or mere savings alone will not help you deal with inflation.

In order to multiply your wealth, you need to deploy it productively to earn respectable returns over inflation (also known as the real rate of returns). Also, do not forget to track and review your investment portfolio at least once in 6 months and to take corrective measures. It need not be done every day or every week if you have adopted enough prudence while investing in the beginning.

PS: If you are serious about investing in rewarding mutual fund schemes, consider PersonalFN's flagship Unbiased Mutual Fund Research service- Fundselect.

It is a credible research service that provides insightful guidance and recommendations on equity funds and debt schemes every month --- the ones to Buy, Hold, or Sell.


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