Ahead of Diwali, the government announced a 3% hike in dearness allowance (DA), making it to 53% of the basic pay compared 50% earlier. The increase in DA provides significant relief to more than 1.15 crore Central government employees and pensioners. While the enhanced amount provides relief, it also offers an opportunity to grow your wealth and make the most out of this opportunity to adjust your investments.

If you’re wondering how to put this additional income to good use, here are some investment tips to help you maximise the benefits of the DA hike.

Paying Off Debt

Before you think of any additional investment, it’s crucial to assess whether you have any high-interest debt, such as personal loans or any other debt. Clearing your debt can help you save a substantial amount of money in the long run. Interest rates on certain loans are typically much higher than the returns on most investments, so paying off debt can offer guaranteed savings.

Also Read: Simplify Your Bills: How Auto Payments work and how to use them wisely

Increase Contributions to Savings

The additional income from the DA hike can be used towards increasing your contributions for savings and investments. The government schemes like PPF, NPS and other investment schemes like FDs and government bonds for risk-averse investors can help in building your retirement corpus.

Increase SIPs in Mutual Funds

Systematic Investment Plans (SIPs) help you invest small amounts regularly, generating higher returns. Equity mutual funds tend to offer 10-12% average returns over the long term, although they carry higher risk. If you are younger and have a longer investment horizon, you can take on a bit more risk for higher returns. For government employees nearing retirement or pensioners, opting for a hybrid or balanced fund might be more appropriate, as these funds blend equity with debt, reducing overall risk.

Top Up Your Emergency Fund

Adhil Shetty, CEO of Bankbazaar.com, explains, “An emergency fund is essential for everyone, including government employees. Ideally, this fund should cover at least six months’ worth of living expenses, stored in easily accessible instruments like a savings account, liquid funds or short-term fixed deposits. The extra DA can be used to build this safety net, ensuring you’re prepared for unforeseen medical or financial emergencies.”

Also Read: Fixed Deposit: Top 30 banks offering highest interest rates on 1 year FDs

Buy A Health Insurance Policy

Healthcare costs are rising. Using the increased DA to purchase or top up a health insurance policy for yourself and your family can provide much-needed financial security.

Shetty says, “Investing in a comprehensive health insurance plan ensures you’re well-prepared for medical emergencies, which can deplete savings quickly. You can make use of hikes in your income to top up or buy a new health policy that takes care of your family needs.”

Invest in Gold or Sovereign Gold Bonds (SGB)

Gold has long been a favoured investment for Indians, especially during festive seasons. Instead of physical gold, consider investing in Sovereign Gold Bonds (SGBs). These bonds are issued by the Reserve Bank of India (RBI) and offer the dual benefit of price appreciation and an annual interest. Moreover, SGBs eliminate the risks associated with storing physical gold and provide tax benefits if held until maturity.

The DA hike, thus, offers a valuable opportunity to enhance your financial stability. Whether you’re a Central government employee or a pensioner, making wise investment decisions is important for a better financial future.