This simple allocation trick can make your Diwali bonus last decades.

The practice of giving bonuses has deep roots in India’s corporate culture, dating back to the British era, when the shift from weekly to monthly wages led to a dip in workers’ yearly income. To make up for it, companies began offering a special Diwali payment — a practice later formalised by the Payment of Bonus Act, 1965, mandating employers to pay at least 8.33% of salary as a bonus.

A well-invested bonus today can help achieve any financial goal — from a child’s education or home purchase to building a retirement corpus.

Invest your bonus for long-term goals

Most individuals spend their bonus immediately on new clothes, electronics, home improvements, or festival gifts, losing the opportunity for long-term growth. The biggest challenge here is how one perceives money. Most of them see a bonus as extra money rather than core income, making it mentally easier to spend than to invest.

However, the real power of a festive bonus lies in investing it rather than spending it. Individuals who successfully grow their bonuses into wealth typically use these psychological techniques:

Pre-commitment strategies: Deciding what to do with the bonus before receiving it

Mental account separation: Thinking of bonus funds as “payment to your future self" rather than “reward for your current self."

Visual progress tracking: Using charts or dashboards to see how previously invested bonuses are growing.

Consider a yearly bonus of ₹50,000 received by a 30-year-old professional, invested in an equity mutual fund earning 12% per year. In 25 years, it will grow to about ₹8.74 lakhs. Even more impressive, investing the same ₹50,000 bonus every year for 25 years would grow to approximately ₹77.38 lakhs. This could fund a child’s international education or provide support during retirement.

Spread your bonus across assets

The past year has been a masterclass in asset allocation. Equity investors who rode the market rally since 2020 saw muted, single-digit growth in the last 12 months. Gold investors, on the other hand, enjoyed stellar returns. The lesson is simple: spreading investments across asset classes cushions you from market swings and captures opportunities wherever they arise.

Know your asset options

• Equity mutual funds offer high growth potential for long-term wealth creation but come with moderate to high risk.
• Hybrid funds balance growth and stability by mixing equity and debt.
• Debt funds provide predictable returns for conservative investors seeking steady income.
• Real estate delivers tangible ownership but demands high capital and carries concentration risk.
• Gold, meanwhile, serves as an effective inflation hedge and portfolio diversifier with low correlation to equities.

Here’s a framework to allocate a ₹1 lakh bonus strategically across goals, balancing security, growth, and gratification.

Essential allocation (20%) — Build your financial safety net

This portion builds financial security by creating an emergency fund or reducing high-interest debt, such as credit cards or personal loans.

For a ₹1 lakh bonus, ₹20,000 would be directed here, providing immediate financial stability and preventing future emergencies from derailing your investment plans. This allocation offers peace of mind and creates the foundation for future wealth-building.

Growth allocation (50%) — Power your long-term goals

The largest portion focuses on long-term wealth creation through equity investments. For a ₹1 lakh bonus, ₹50,000 can be invested in a diversified mix of equity instruments, comprising approximately 20% in index funds, 20% in multi-cap funds, and 10% in mid/small-cap funds, to capitalise on higher growth potential.

This allocation is specifically tied to long-term goals like retirement or children’s higher education, leveraging the power of compounding over decades.

Preservation allocation (20%) — Safeguard against volatility

This component strikes a balance between growth and stability, focusing on capital preservation while earning returns that exceed inflation. For a ₹1 lakh bonus, ₹20,000 would be directed to fixed-income instruments like corporate bond funds, target maturity funds, or tax-efficient options like PPF.

This allocation serves medium-term goals (3-7 years away), such as home renovations or vehicle purchases.

Experience allocation (10%) – Reward yourself responsibly

This is the smallest but psychologically important portion, acknowledging the need for present enjoyment. For a ₹1 lakh bonus, ₹10,000 would be reserved for immediate gratification, which can be a family dinner, a quality purchase, or even a skill-building course.

This prevents “financial fatigue" from an overly restrictive approach, making the overall strategy sustainable.

This framework transforms a single bonus into a comprehensive financial plan, balancing immediate joy with future security. With discipline, your annual bonuses can compound into meaningful wealth — helping you meet life’s big milestones with ease.

Each bonus season, you face a simple but powerful choice: spend for the moment or invest for your future.The choice is yours!

Atul Shinghal, founder and CEO, Scripbox, a digital wealth management app