Though many have a tendency to think of bonus as anything but their salary, there is mighty reason why you should gift yourself before thinking of gifting anyone else.
It's that time of the year when many receive their annual bonus and few others contemplate what they should be doing with the bulky amount they just received a month ago.
While you might have made a list of things you want to fulfil now that the windfall gain is in your hands, don't yet rush to throw parties to your best friend's neighbour and the aunt you last saw when you were a kid. The diamond necklace that you had set your eyes on can wait and so can the high cost low utility appliance that would be lying idle most times of the year.
Though many have a tendency to think of bonus as anything but their salary, there is mighty reason why you should gift yourself before thinking of gifting anyone else.
SIP top-up
There is a universe of mutual funds available to choose from. But, if you have an ongoing systematic investment plan (SIP), where you have been investing regularly and have been satisfied with the consistency in performance, you need not look elsewhere. You have the option to invest lumpsum in same fund, under the same folio number as your SIP. Also called SIP Top Up is used by many investors to park surplus amount during the year.
Other fund lumpsum
If you are looking to diversify your mutual fund portfolio, then the bonus amount can be invested in another fund. Here you would have two options, either to invest the intended amount at one go, or break it down into small quantum and then invest over a period.
The method of distributing money over a period is called a systematic transfer plan (STP) and helps you benefit from stock market volatility. The risk one runs with lumpsum investments is of the stock market wave turning the other way post investment. This risk can be evened out by spreading the money over a period through STP.
Meeting short-term goals
If you have an immediate goal inching toward you and hence you plan to keep the money aside, then instead of keeping the money idle in savings banks you can take advantage of liquid funds. These funds invest in instruments which have lower maturity and hence one can park funds in liquid funds for as low as a day.
Consider these funds if you are waiting to find the right investment instrument or awaiting a goal in the near future as these funds carry low interest rate risk and do not levy any entry or exit loads, while offering an edge over the savings bank account interest.
Saving taxes
While spending may be the first thing on your mind when you receive bonus, but saving money – especially for taxes – at the start of the year helps in more ways than one. Your money grows for 10 more months, when invested during the current period than in February-March, thus resulting in a bulkier corpus thanks to compounding. You would also be saved from the hassle of last-minute tax planning. So, consider investing bonus amount in equity-linked savings schemes (ELSS), which have the shortest lock-in period among all other tax-saving options. Those looking to avoid staggered lock-in period over investments can consider lump sum investments for ELSS investments.
SIP booster
Apart from investing the bonus amount, the annual appraisal is the time you should consider enhancing your SIPs. This not just help you keep the lifestyle expenses stagnant, while saving a higher amount, but also helps your investments beat inflation blues.
If you are wondering about the form-filling and trips to the advisor or the fund house each year, then these are things of the past. Today, one has the facility to opt for SIP amount enhancement at regular intervals – yearly or half yearly while enrolling for the SIP. The savings kitty gets a fillip with enhancement of investment value.
Consider a situation where you have been saving Rs 5,000 monthly. If we estimate a growth of 10% annually then under regular circumstances, you would accumulate Rs 10.3 lakh at the end of 10 years. However, if you opt for an SIP booster facility, where in your SIP amount increases by Rs 1000 at the end of each year for 10 years, then you would have accumulated Rs 17.80 lakh.
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