Instant financial gains in life give you an opportunity to either use them to reduce your financial burden or make the most of them by investing the gains aptly. Gratuity is one such monetary benefit given by an employer to an employee. It is a lump sum amount given at the time of retirement, resignation, or upon an employee’s death or disability.

The payment is governed by the Payment of Gratuity Act. Gratuity becomes payable after an employee completes five years of continuous service with the same employer. To make the most of this gratuity amount, it’s essential to plan carefully. Here are some tips to use your gratuity wisely:

Debt Repayment

If you have any outstanding loans or debts, using your gratuity to pay them off can provide immediate financial relief. Clearing high-interest debt like credit card bills or personal loans should be a priority as it helps in reducing financial stress and improving your credit score.

Adhil Shetty, CEO, Bankbazaar.com, says, “With a higher credit score and reduced existing debt, lenders view you as a lower-risk borrower. This perception increases your chances of securing additional credit when needed, be it for emergencies, investments, or significant life events.”

“Partial repayments reduce the loan tenure, enabling you to pay off your debts earlier than originally planned. This early repayment not only saves money on interest but also provides financial freedom,” adds Shetty.

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Emergency Fund

Allocating a portion of your gratuity to build or enhance your emergency fund is a prudent step. An emergency fund should ideally cover 6-12 months of your living expenses and acts as a financial cushion during unforeseen circumstances like job loss, medical emergencies, or other unexpected expenses.

This money can be parked either in liquid funds or your savings account or you can also decide to open an FD account that helps you earn interest on your investment.

Retirement Planning

For those nearing retirement, it is wise to invest the gratuity amount in a safe and stable financial instrument. Alternatively, you could consider investing in low-risk mutual funds or fixed deposits.

Mutual Funds

For those with a higher risk appetite, investing in mutual funds or direct equity can offer substantial returns. Systematic Investment Plans (SIPs) in mutual funds are particularly beneficial for wealth creation over the long term. Diversifying your investments across various funds like equity, debt, and hybrid funds can help in balancing risk and returns.

Child’s Education and Marriage

Gratuity can also be allocated towards your child’s education or marriage. Investing in child education plans or setting aside a corpus for future educational expenses can ensure that your child’s academic aspirations are not hindered by financial constraints.

Travel and Leisure

While it is important to save and invest, it is equally important to enjoy the fruits of your labour. Planning a well-deserved vacation or indulging in a hobby can provide a refreshing break and contribute to your overall well-being.

Receiving a gratuity amount is a testament to your dedication and hard work. Whether it’s paying off debts or investing this money for higher returns, your gratuity funds can help you take a wise financial decision.