Diwali is a season of celebration, family get-togethers, gifts and spreading love, happiness and joy. But there’s one more factor that makes this festival special: receiving a Diwali bonus. A Diwali bonus, in many ways, is recognition of all the hard work you have put in during the year, a well-deserved treat that makes the festive season even sweeter.
Invest Diwali Bonus in Liquid Funds
It can be very tempting to spend your Diwali bonus on expensive purchases, new experiences and gifts for your loved ones. But there is also merit in investing that bonus so that it can grow further. One way of doing that is to invest in
mutual funds , particularly liquid ones. Liquid funds are likely to be less risky than other types of mutual funds and have the potential to offer returns that are better than traditional financial instruments. Also, these are short-term funds, which can be considered by investors who wish to strike a balance between short-term and long-term investments in their portfolio.
Thus, in a scenario where you are looking to make a big-ticket purchase with your Diwali bonus in the short term, but the timing is uncertain, you could choose to park that money in relatively less risky liquid funds, which can likely give you better returns in a short period as well as the flexibility to withdraw money when your big purchase gets finalised. Or, if you wish to invest your bonus in
equity mutual funds , but the stock prices are too high, you could consider liquid funds as an option in the interim and shift to equity funds once there’s a correction in the stock markets.
What are Liquid Funds?
Liquid funds are essentially debt funds that invest in assets that are short-term in nature. They are open-ended liquid schemes, which invest in debt and money market securities having maturity period of up to 91 days.
Benefits of investing in Liquid Funds
1. Liquid funds have the potential to earn better returns than traditional financial instruments.
2. Typically, bond prices and interest rates are inversely proportional. Thus, when interest rates rise, bond price falls and vice versa. But because liquid funds are short-term, the value of the securities is relatively lesser impacted by interest rate fluctuations.
3. Liquid funds tend to be low-cost funds.
4. Liquid funds are relatively less risky because they invest in securities whose maturity period does not extend beyond 91 days.
What every individual does with their Diwali bonus is a personal choice. But there is a case to be made for investing your Diwali bonus so that it can grow. Suppose you are an investor with a short-term horizon looking for an investment avenue likely to offer better returns than traditional financial instruments. In that case,
liquid funds could be an option you could consider for parking your bonus. If you decide to keep aside a contingency fund or wish for something temporary, then liquid funds can work, too, because they give you the flexibility to withdraw funds at a short notice.
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Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.