Got Diwali bonus from your employer? Clear credit card dues or start mutual fund SIP: Which money move is right for you?

Have you received a Diwali bonus of ₹10,000 from your employer? Before spending the festive windfall, consider whether you should use it to clear outstanding credit card dues or start a mutual fund systematic investment plan (SIP) to build long-term wealth.

Here's what an expert suggests and how the numbers compare for each option.

Vedant Gupte, Co-Founder and CEO of investment platform Trackk, said Diwali bonus is a rare chance to reset your finances, and the smartest first move is almost always clearing any revolving credit card balance.

“Card interest can run upwards of 36% a year, a rate no mutual fund reliably beats, so paying it off is a guaranteed return no SIP can promise. Think of it as investing in your own balance sheet.”

Once high-interest debt is cleared, commit to a SIP amount that you can sustain over the long term. Clearing debt first and investing with discipline thereafter is a prudent way to use a Diwali bonus, he added.

Consider an illustrative example where you receive a Diwali bonus of ₹10,000 and have an outstanding credit card balance of the same amount. Assume you convert this balance into a 12-month EMI at an annual interest rate of 20%.

• Outstanding balance: ₹10,000
• Interest rate: 20% per annum
• Repayment tenure: 12 months
• Monthly EMI: ₹927
• total interest: ₹1,116
• Total repayment: ₹11,116

Using the Diwali bonus to clear the outstanding balance would help avoid this interest cost, assuming the balance is eligible for full repayment without additional charges.

Once you have cleared your credit card dues using the Diwali bonus, you can redirect the monthly EMI amount you would otherwise have paid towards an equity fund SIP.

Assuming an annualised return of 10%, here is how your monthly investment could grow:

• Monthly SIP: ₹927
• Investment period: 12 months
• Total investment: ₹11,124
• Estimated maturity value after 1 year: ₹11,718

This way, by using the Diwali bonus to clear credit card dues and then investing the freed-up EMI amount through an SIP, you could benefit from both moves.

In contrast, investing the ₹10,000 Diwali bonus as a lump sum would grow to an estimated ₹11,000 after one year, which is lower than the total credit card repayment of ₹11,116.

For those who pay their credit card bills in full by the due date every month and carry no revolving balance, there is no reason to prioritise debt. In such cases, using the Diwali bonus to start a mutual fund SIP can be a useful way to build long-term wealth and benefit from the power of compounding, Gupte said.

Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance. <br><br> She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram. <br><br> Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.

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