Weekend Bytes
Invest your Diwali bonus prudently - Asset Allocation Funds are a good option
A bonus is always exciting and welcome. Since it's an amount over and above what one earns and budgets for, it's assumed that a bonus is an excuse to treat oneself. It can get tempting to spend your Diwali bonus on something you otherwise wouldn't have purchased. You may even think it's wise to spend a portion and save the rest. But even better is to invest the entire amount. Your future self will thank you for it. Here's how you can invest your Diwali bonus prudently:
Invest your bonus in Asset Allocation Funds
You may think that if you're not spending, it automatically means you're saving. After all, your funds are right there with you in your bank account. However, idle funds in your bank account earn little to no returns. In fact, your money loses value over time. Instead, it's wiser to invest the amount into mutual funds where your money can grow with time. Invest your entire Diwali bonus in an Asset Allocation Fund. (Click here to know more about HDFC Asset Allocator Fund of Funds). This way, your bonus amount will be channelized into various asset classes.
Make tax-saving investments
Your Diwali bonus is a great opportunity for you to reduce your tax liability. One can make tax saving investments under Section 80C of the Income Tax Act which allows deduction of up to Rs.1.5 Lakh. Instead of making these investments from your regular income, you can utilize your Diwali bonus for this purpose. Some of the eligible investment options include Equity Linked Saving Scheme (ELSS), Public Provident Fund scheme (PPF) and National Pension Scheme (NPS). Using the funds for medical insurance will separately save you tax.
Build an emergency fund
Another way to be prudent with your Diwali bonus is to divert it into an emergency fund. If you don't already have one, a bonus can be a convenient opportunity to start one. You can count on this cash reserve in case of unexpected situations. Liquid funds are preferable when you want to park away money for an emergency. They have lower credit risk and can be withdrawn within 24 hours.
Utilizing your Diwali bonus for investments is a wise choice for many reasons. It doesn't dip into your regular budget so your set financial plan doesn't change. You can invest without it interfering with your other expenses.
