Diwali is one of India’s most important and auspicious festivals, symbolising the triumph of light over darkness. Spirits are usually high around this time and everyone is willing to indulge a little bit, whether it is on sweets, luxury items, gifts, travel. As working professionals, we can all agree that the joy of receiving a notification on our phone that says, ‘Deepawali bonus credited’ is unparalleled! For Indian households, it is one of the most awaited event of the year.
Deepawali bonuses help to alleviate some of the burden of the extra expenses incurred during the festive period. However, we can’t deny that most of us are persuaded into buying things that we may not necessarily need, falling prey to tempting offers and discounts. Our desire for instant gratification often prevents us from leveraging a long term wealth creation opportunity during the festive season.
Let us look at some of the avenues available at our disposal to efficiently splurge on this Deepawali, turning over a new leaf in our investment journey:
1) Invest in a precious metal digitally
Most households tend to purchase some precious metal (like gold or silver) during the festive period, with the faith that it brings in good fortune and prosperity. Today, investors have the option to invest in a Gold or Silver ETF instead, which not only provides price transparency, but also the security of purity while eliminating storage and theft risks. Investors can purchase units of Gold or Silver ETF as they are listed on an exchange and traded in real-time like stocks. Mutual Funds also offer Gold or Silver ETF schemes that are passively managed
2) Tax saving avenues
It won’t be long before most employees are required to show their employers proof of tax savings. If they are unable to do so during those months, a tax cut from their salary may disrupt their monthly household expenses. Moving slightly away from traditional instruments, Deepawali can be viewed as a good starting point to plan for the tax saving season. Investors may consider an ELSS (Equity Linked Saving Scheme) Fund that primarily invests in equity and equity-linked schemes. These funds come with added benefits such as lower gains on tax, power of compounding, better risk-adjusted returns, availability of SIP and lumpsum options.
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3) Emergency fund
One of the biggest lessons to be learned from the recent pandemic and the continued upheaval in the macro environment, is that nothing in life can be predicted. In this case, the only thing that we can do is follow the Boy Scouts motto to ‘Be Prepared’. An Emergency Fund can be one of the core components of your investment portfolio to cushion any financial troubles and ensure access to liquidity in a short time. The festive period can be a good time to create one for yourself (in case you don’t have one). Basis individual needs, one may consider investing in Overnight Funds, Liquid Funds, etc.
4) Retirement fund
One amongst the best ways to use your Deepawali bonus is to create a retirement fund. Young investors (especially) may find this suggestion a bit off-beat but imagine celebrating Deepawali 2042 in your dream house surrounded by loved ones, pursuing your interests, and enjoying early retirement. In order to that, one must start planning early so that investors can lead a comfortable life without having to compromise on their lifestyle. In fact, mutual Funds offer multiple viable retirement solutions which one may consider
5) Investing in or topping up SIP
Lastly, investors can always consider either investing in SIPs or topping up SIPs in their existing investments. Over time, investors are not only able to navigate short term volatilities of the market, but also stand to benefit from the power of compounding. Today, investors can also start a Smart SIP which essentially allows them to vary their SIP contributions basis pre-determined parameters (and the triggers are usually determined by an algorithm) such as index level, PE ratio, etc. However, it is important to note that the features of the Smart SIP facility may vary from fund house to fund house and is available only for open-ended equity-oriented under the Growth option
No matter how you choose to invest your Deepawali bonus, remember to think for the long term. Investment decisions should be based on individual goals and timeframes, and discipline is key. While we are not here to dictate that the entire bonus be allocated towards investments (it is the festive season, after all), we do believe that careful planning can create a plethora of wealth creation opportunities for investors!
So, what are you waiting for? Start investing today!
Raghav Iyengar is Chief Business Officer, Axis AMC