Put your bonus earning to good use!

Buoyed by good quarterly results and record profits, airline companies are distributing bonuses and salary increments to employees. The country’s largest airline company Indigo is giving 5 percent bonus to its pilots and cabin crew. Meanwhile, Tata Group-owned Air India has announced a salary hike of up to Rs 15,000 for pilots along with an annual performance bonus of up to Rs 1.8 lakh. In the months of May-June, most salaried employees are given bonus by companies.

Have you also received a bonus? But have you planned to use the bonus wisely? If not, then do it now!

There are some ways to make efficient use of your bonus. If you have taken a loan at a higher interest rate, like a credit card or personal loan, then you can use bonus to repay it. The interest rate on personal loan ranges from 11 to 24 percent, whereas the interest rate on non-payment of outstanding amount of credit card ranges from 24 to 48 percent per annum. Although, it is difficult to get returns equal to the loan interest by investing the bonus money. In such a situation, it is better to pay off expensive debt.

Every person should have an emergency fund. So that in difficult times, like medical emergency and loss of job, there are minimal inconveniences in meeting the necessary expenses. The emergency fund should have money equal to at least 6 months of essential expenses. If you have not yet created an emergency fund, then you can start it with the bonus that you’ve received.

If you have a big financial goal like buying a house, retirement planning or wealth creation, then you can use the bonus for these purposes. This will help in achieving the financial goal faster. The tenure of investment is long. If you understand the market and can bear the ups and downs of the market, then you can invest directly in the share market. You can invest the bonus money in stocks of companies with strong fundamentals and growth prospects by doing your own research or taking the help of a financial planner.

Salaried people who do not understand the market can enter the market through mutual funds. In this, experienced fund managers invest your money in the stock market through mutual fund schemes. In equity mutual funds, you can get up to 12 percent annual return in the long term, whereas in debt mutual funds, you can get annual returns of up to 8 percent. The return is not fixed and keep fluctuating.

Let us understand the benefits of bonus investment with an example. Suppose your annual package is Rs 12 lakh. And 10% of it i.e. Rs 1.20 lakh is performance bonus. If you invest the entire money in equity mutual fund, then in 5 years the amount will increase to Rs 2.11 lakh i.e. almost double. And in 10 years, it will be around Rs 3.73 lakh.

If you cannot take much risk and have a short to medium term perspective, then you can invest the bonus money in fixed deposits. In large banks, interest can be around 7 percent, while in small banks, interest can be more than 8 percent.

Understand that the bonus money should not be wasted on unnecessary things. Rather, they have to be used wisely, so that savings can be readied up for future. Although, there is no harm in spending some part of the bonus on travelling, buying new gadgets or shopping.