scorecardresearchReceived Diwali bonus? Here is a smart way to invest some of it

Received Diwali bonus? Here is a smart way to invest some of it

Updated: 19 Oct 2022, 11:05 AM IST
TL;DR.
This Diwali, invest your bonus and gifts in SIPs to see your money grow. Enough money equals financial freedom. Being financially free is the first step to never-ending happiness.
SIP your way to a happy Diwali this year

SIP your way to a happy Diwali this year

Diwali is around the corner. Many people are busy deciding how much gold to buy, which properties to invest in, and which stocks to pay for during Diwali Muhurat Trading. Not everyone has the necessary finances to invest in real estate. This results in many people seeking debt. Investing in gold coins or bullion is good considering how gold prices are at their lowest at present. 

Alternatively, you may park your Diwali gift or bonus in mutual funds. Not all gifts are in kind; some relatives also gift cash to their loved ones. You can make good of the bonus amount to start a new mutual fund systematic investment plan or step up your existing SIPs.

Of all investment opportunities available, SIPs are comparatively more affordable than others. You may park your money in either equity or debt instruments depending on your risk appetite and financial goals in the long run. Given the current volatility in the market owing to geopolitical tensions, parking money in a mutual fund and accumulating more units at a comparatively lower net asset value (NAV) may help. 

Data reveal how many more people have started investing more in mutual funds during this volatility while many have stepped up their investments, thus, increasing SIP investments with many mutual fund companies. With so many people now realizing the importance of mutual fund investments to achieve their financial goals or accumulating the much-desired corpus coupled with many companies allowing SIP investments as low as 500 to their investments, retail investors are expected to take over institutional investors in the coming decade.

Why SIP this Diwali?

While you enjoy yourself with your friends and relatives and enjoy this festival with lights and sweets, take some minutes out of your everyday schedule to plan your investments. This is not difficult if you know how much money you are looking to accumulate within the stipulated period and if your current earnings support your investment plans.

If you are new, start with a SIP investment in an index fund. Index plans are passively managed funds, which means that all you have to do is continue with your SIPs regularly and allow your fund to grow with the market. Though past results are not indicative of returns in future, you may still compare returns and expense ratios coupled with factors like fund management details, portfolio turnover ratio, downside protection percentage, etc. to decide your first fund investment.

Take, for example, the Tata S&P BSE Sensex Index Fund - Direct Plan that has earned 12.34 per cent returns to its investors in the past five years. The Nippon India Index Fund - Direct Plan - S&P BSE Sensex Plan–Growth has delivered nearly 13.28 per cent of five-year returns. The IDFC Nifty 50 Index Fund - Direct Plan-Growth is another index fund that has shown an excellent track record in the last five years.

Name of the fundMonthly SIP (in Rs)

Five-year returns 

(in %)

Accumulated corpus 

(in Rs)

Nippon India Index Fund - Direct Plan - S&P BSE Sensex Plan-Growth10,00013.288,54,663
Tata S&P BSE Sensex Index Fund-Direct Plan10,00012.348,32,653
IDFC Nifty 50 Index Fund - Direct Plan–Growth10,00012.318,31,962

If you are an active investor, go for an actively managed equity fund that can set you financially free or garner an impressive retirement corpus to take care of your needs during the golden years of your life.

Start with a simple large-cap fund that invests mainly in blue-chip stocks. Midcap funds yield a bit higher though the risk is a bit more. However, the risk-reward return ratio makes investments worthwhile. Small-cap investments park money in fundamentally strong companies with small capital that have the potential to rise and make it big with time.

Name of the fundMarket Capitalization

Monthly SIP 

(in Rs)

Five-year returns 

(in %)

Accumulated corpus 

(in Rs)

Edelweiss Large Cap Fund - Direct Plan-GrowthLarge Cap Fund10,00012.498,36,118
Quant Mid Cap Fund - Direct Plan-GrowthMid Cap Fund 10,00020.9310,62,899
Kotak Small Cap Fund - Direct Plan-GrowthSmall Cap Fund10,00018.409,87,852

The year 2022 has been a year of conflicts and major political shifts. However, this did not dissuade investors from continuing with their regular SIPs. Mutual fund investments require persistence more than any other thing, which is why you must pause your investments, unbiased of macro factors or the noise around you. Do not be bogged by the negative returns in the first or second year. Just continue with your SIPs and top up your investments regularly when the market goes low. The bearish phase is the perfect time to accumulate more units. 

In layman’s terms, earnings from mutual funds is equal to the number of units accumulated multiplied by the NAV at the time of redemption. Keep this in mind and see your money grow. The Power of Compounding is effective only when you start early and continue regularly. Rest is all chaos and unnecessary information that you may ignore.

So, amidst the chaos and confusion this Diwali, ring in happiness by adopting sensible and never-ending investing behaviour. 

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First Published: 19 Oct 2022, 11:05 AM IST