Diwali 2017 Special: How to invest your Diwali bonus smartly

Published: October 16, 2017 6:01:18 PM

Depending upon how you are currently placed, you can use your Diwali bonus to invest in various options to safeguard your short term, middle term or long-term interests.

Diwali Bonus 2017, Diwali 2017, bonus, How to invest Diwali bonus, Health Insurance, Contingency Fund, Pay Off DebtThough your bonus can be invested in a wide range options, health insurance is perhaps one of the first things that should be considered.

By Adhil Shetty

Besides being a festival of lights and celebrations, Diwali also brings cheer in the form of bonuses. If you are one of those who is entitled to a Diwali bonus and are tempted enough to splurge it on gifts and shopping, then this article is for you. You can put this money into different investment avenues and earn impressive returns or you can use it to pay off your debt.

While your bonus can be invested in a wide array of avenues, some benefits last only about a year, a few up to 5 years and some up to 10-15 years. Let us categorise these into short term, medium term and long-term options for you to better understand where you would like to invest your Diwali bonus.

SHORT TERM

Health Insurance

Though your bonus can be invested in a wide range options, health insurance is perhaps one of the first things that should be considered. A health insurance or mediclaim provides you financial cover against a wide range of diseases. Mediclaims can be for individuals, group or families and usually remain valid for one year based on a yearly premium. Investing a portion of your money in health insurance covers you against unexpected heath conditions.

Create A Contingency Fund

Like health insurance provides coverage for your health, a contingency fund protects you against any unexpected event that can adversely affect your ability to earn. Ideally, a contingency fund is created by taking a 6 months multiple of your average monthly expenses. So, if your monthly expenses is Rs 20,000, you should target to create fund of about Rs 1,20,000 to ensure your financial security.

MEDIUM TERM

Pay Off Your Debt

If you’ve already taken care of the immediate short-term needs mentioned above, you can turn to paying off any outstanding credit card debt or loans. Credit card debts can accrue interest up to 40% on a yearly basis and are best dealt with as soon as possible.

Invest in Mutual Funds/SIP

You can also look at creating more wealth by investing in diversified mutual fund portfolios or even SIPs (Systematic Investment Plan). SIPs can be invested as less as Rs 500/month and provide good returns in the medium term horizon of 3-5 years. Any less than that might be too early to expect a positive return from mutual funds, though it is dependent on the market condition at the time of investment.

LONG TERM

Gold ETF

In order to have a diversified portfolio, it is important to invest for the long-term horizon as well as short and medium term. While short and medium term options provide immediate or near future benefits, long term options help to secure life after 10-15 years. Gold ETF is often touted as one of the most versatile investment options since it provides the security of investing in gold and the liquidity of mutual funds at the same time. As a result, instead of buying physical gold, you are actually buying a unit (equal to one gram) of gold on paper.

Term Insurance

Unlike health insurance that covers the cost of any hospitalisation and overnight treatments, term insurance offers financial benefits upon loss of life. A term insurance provides financial assurance for the beneficiaries to ensure continuity of livelihood in the event of death of the primary earning member.

Depending upon how you are currently placed, you can use your Diwali bonus to invest in these options to safeguard your short term, middle term or long-term interests.

(The writer is CEO, BankBazaar.com)

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