Diwali is around the corner, and with it comes the joy of celebration and the anticipation of a Diwali bonus. While we all look forward to the festivities, it’s also the perfect time to think about making the most of that extra income. Whether you’ve received a generous bonus or a little something extra, smart investing can help you grow your wealth. Let’s explore five ways to make your Diwali bonus work for your financial future.
Pay off Debt: Before we begin with the investment opportunities, if you have any outstanding dues or debts, make sure to pay them off. There is no better celebration than lifting that burden from your shoulders and enjoying the festival. You can easily pay off the debts by strategically planning around it like paying high interest rate loans first to save extra money going out.
Fixed Deposit (FD): For Indians, FDs are the OG of investments. Considered the safest investment, FDs offer an annual return of around 7%-9%. Generally, there is no tax benefit while investing in an FD but there is one small benefit sitting in the corner that can help you get tax benefits out of this investment as well. A tax saver FD with a lock-in period of 5 years provides a tax deduction of up to ₹1,50,000 under section 80C.
However, the interest from the same will be taxable as Income From Other Sources.
Real Estate Investment Trusts(REITs): REITs are an investment instrument that offers an opportunity to invest in real estate without shelling out huge investments. Providing a return of around 7%-9%, REITs earn in the form of rents, dividends, and interest and pass on 90% of the total income to unitholders.
The tax treatment is the same as that of a mutual fund meaning capital gains will arise upon the sale of units based on the holding period. The income received from the units will be taxable as Other Sources at the applicable slab rates, based on the nature of income whether dividend or interest.
Corporate Debt Funds: This type of mutual fund invests 80% of the funds in corporate bonds and debentures which gives an average annual return of around 7%-8.5%. Corporate Debt fund offers a safer option than equity.
Upon sale of these units, they will be taxed as capital gains at slab rate. As per the latest amendment, there is no longer a concept of long-term or short-term under debt funds, they will be taxed at slab rate without any indexation benefits. The interest income from the funds will be taxed as Income From Other Sources at the applicable slab rate.
Equity Linked Savings Scheme(ELSS): This Mutual Fund investment scheme can be your perfect investment opportunity. It offers you a return of around 12%-15% with a deduction of ₹1,50,000 at the time of investment u/s 80C.
ELSS comes with a lock-in period of 3 years, hence it is generally considered LTCG when sold. If the total LTCG is less than ₹1 Lakh, the whole amount is exempted and if not then taxed at 10%.
Here’s a summary of everything discussed above:
What are your views on these investments? Do you have any better investment ideas in mind? Comment below!