Earned Diwali Bonus and Cash Gifts? Invest in Mutual Funds to Brighten Your Financial Future

Last weekend, on the occasion "Bhaidooj", we all cousins met at my place. As we had received gifts from family members, we were discussing about it when my cousin Rashmi said, "You know, I have received a Diwali bonus from my workplace and it's my first festive bonus. I have planned to buy the new iPhone with this amount and rest I will take a loan EMI."

To which my another sister Disha replied, "I have received some cash gifts and combining it gives me a good amount to shop for the Zara H&M clothes, I wanted." My elder brother Rahul replied to them "I had done the same with my first festive bonus Rashmi, if you really need the new iPhone then only buy it or borrowing a loan with EMI option may create debt burden for you. And Disha I think we could put the cash you received for some better use instead of splurging it all on branded clothes. I think Mitali will agree with me, as we discussed the same last year."

To which I responded, "Yes Bhai, I completely agree with you. Rashmi and Disha, don't you guys think instead of spending the entire bonus and cash gifts on such short term materialistic desires, there are various investment opportunities you can look for."

Rashmi asked, "But then, what exactly should we do with this surplus income? Mitali please explain us in detail so we can decide how to utilise this money."

You see, Diwali bonus may seem like a gift and you will be tempted to splurge the amount with various festive offers on shopping etc. and same with cash gifts. However, you must take the opportunity to wisely invest the amount this festive season into several worthy investment avenues. This will serve in your interest for wealth creation and assist you in long-term financial well-being. It will give a push to achieve your envisioned financial goals.

No matter the amount of your Diwali bonus and cash gifts is huge or small, with effective financial planning you can make the most out of it. Before you think on how to spend and end up splurging, let me guide you with few smart ways to utilise your festive bonus and cash gifts this Diwali.

Here are few ideas you may consider to utilise your surplus money this festive season:

1. Invest in mutual fund via SIPs

Equity mutual funds have the potential to fetch you good returns in the long run and are ideal wealth creation instruments. It is never too late to start investing a small amount towards your envisioned financial goals such as buying a dream home, children's education needs, their wedding expenses, and your own retirement, etc. As we know "Rome was not built in a day", similarly small investment will lead to wealth creation and what could be a better option than investing in mutual funds via SIP.

You see, markets are on a roll and you must ensure your risk appetite and investment horizon before investing. Notably, equity funds have the potential to give you good returns in the long term. But don't rush to invest in this overheated market; choosing worthy mutual fund schemes is extremely crucial to gain optimal returns. For instance, you may invest the cash gift that a relative gave you on Diwali, in an equity mutual fund scheme. You can start investing in mutual fund via SIP with as low as Rs 500 per month. In case you are a conservative investor, you may consider debt funds, as they offer high liquidity, and give stable returns.

Mutual funds offer several categories and plans; you may choose the schemes as per your suitability and diversify your portfolio. The systematic investment plan (SIP) offers the benefit of compounding effect and assist you in wealth creation. You may also consider systematic transfer plan (STP) where you first invest the amount in a liquid fund, and then systematically transfer plan the amount into an equity fund. Your SIP/STP investments in the equity fund will cushion you against market volatility. This is a better way to utilise your festive income and brighten your financial future.

2. Boost up your emergency fund

Amid the pandemic crisis, many of you have experienced financial difficulties one can go through and it has taught us the lesson that we should be financially prepared to weather any such storm in future. It is crucial to maintain an emergency fund that can act as a safety net for you and maintain your financial stability in times of needs.

If you already have set up an emergency fund, you may add the surplus amount to boost up your emergency fund. It will have enough corpus to serve you in uncertain events. However, if you have not maintained an emergency fund, you may start building a rainy day fund by deploying a certain amount to the fund this Diwali. Your emergency fund may hold expenses for 12-24 months including your loan EMIs. You may consider investing in liquid fund as emergency fund as it would offer you slightly better returns than your savings bank account.

3. Prepay your debt

Many of you may have took loans to fulfil your financial requirements or amid the pandemic crisis. If you could reduce your debt burden with the festive income, it will assist you to be in pink of your financial health. You should use windfalls to reduce outstanding debts. You can put your bonus to good use by prepaying your outstanding loans, if any, especially those with high interest cost such as credit card debt or personal loans.

Consequently, you can move on to pay other loans with decreasing interest rate, partially or fully. This will help enhance your creditworthiness and maintain your debt-to-income ratio, which will get you access to availing loans in times of need. However, do check if the lender charges on prepayment of the loan. By reducing debt you would be in a position to save more and invest it wisely to brighten your financial future.

4. Buy an insurance cover

The pandemic has hit us hard and made us realise the importance of having an adequate insurance cover for life and health. With increasing uncertainty in life, having an insurance cover is essential as it protects you from sudden expenses in challenging times. If you have not purchased a life and health insurance policy, now is the time. You may consider gifting an insurance cover to your loved ones as a financial gift as well.

You can use your festive bonus or the amount of cash gifts, to purchase an insurance cover for life and health. It will assist you against the increasing medical expenses and provide you a cover to survive the tough times. You have to ensure the terms and conditions of the insurance plan before purchasing for easy access to claims.

5. Invest in yourself

Diwali is a blissful festival that brings joy and new beginnings. You should focus on your financial literacy and must consider investing in yourself, instead of spending on your short-term desires such as Smart TV, mobile, laptop, shopping branded clothes, etc. This Diwali, begin your journey to enhance your financial knowledge, which will help you brighten up your financial future, as you will be financially aware and make informed financial decisions.

You may consider investing your bonus or cash gifts into purchasing financial books that can guide you towards improving your money management skills and explain the nitty gritty of financial planning. In this fintech world, it is easier to enhance your financial knowledge on your fingertips by enrolling to an online e-course that could enhance your financial knowledge.

Being financially literate will assist you to maintain your financial wellbeing in the long term and you may help your family to take informed financial decisions by becoming their financial guardian.

Therefore, this Diwali deploy your festive bonus and cash gifts wisely into various ways as mentioned above. Make it count by following the right steps and illuminate your financial wellbeing, in order to brighten up your financial future.

PS: PersonalFN understands that not everyone holds the adequacy of financial knowledge. Here we encourage you to gain and enhance your financial knowledge and become a 'Financial Guardian'. You will understand the financial planning elements to become your own financial planner and guide your family through these challenging times.

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So, if you wish to improve your financial knowledge and even select worthy mutual fund schemes, enrol to "Certified Family Guardian" course today!

Warm Regards,
Mitali Dhoke
Jr. Research Analyst

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