It's that time of the year when you may be sitting on a hefty Diwali bonus in your bank account. While it is indeed heartening to see the extra money in your bank account, many are unsure over how to put it to good use. The most important factor to help you strategise better is to treat the bonus as a regular income, and not particularly an added bonanza which brings along with a strong urge to splurge on non-essentials.
You can consider the following options to make the most of your bonus and even have it grow over time.
If you don't already have one, the extra money can be funnelled to make your contingency fund, which may prove useful during times of unplanned financial emergencies. If you already have such a fund running, you can use your bonus - or at least a portion of it - to replenish or grow your fund to keep up with inflation and other additional costs.
Remember to opt for liquid funds to actually carry this emergency money: they are convenient, easy to break and relatively risk free. They are also known to provide a slightly higher return than the traditional bank Fixed Deposit.
Long Term Investments
In case your income and expenses are well covered, you should most certainly look to make the most of your bonus by channelling it to a long term investment. Equity is the most favoured option to beat inflation in the long run, and equity Mutual Funds are worthwhile investments to fulfil many of your long term goals.
In case you have a slightly shorter tenure in mind - 3 years or less - you can also consider investing in less risky debt mutual funds or a hybrid fund. If you opt for this avenue, do remember not to make a lumpsum investment into a mutual fund: you may risk catching a market high in the near term.
Topping up your SIPs
If you are a savvy mutual fund investor and have Systematic Investment Plans (SIPs) active in one or more mutual funds, a Diwali bonus presents the ideal opportunity to increase your contribution to this versatile instrument. Just as you would with a rise in income, a periodic increase in the amount of your investments will serve you good over the long haul.
Unless you have outstanding payments or debts that you need to clear, putting your Diwali bonus into lucrative investment avenues is always the best decision and indicative of smart financial planning.
The author is CEO BankBazaar