If you got a ₹10,000 Diwali bonus, you should clear credit card dues before starting a mutual fund SIP. Vedant Gupte said, "Card interest can run upwards of 36% a year, a rate no mutual fund reliably beats." Clearing high-interest debt is a smart way to reset your personal finances.

Got a Diwali bonus of ₹10,000? Should you clear credit card dues or start a mutual fund SIP? Compare the interest savings from repaying high-cost debt with the potential returns from investing to understand which money move makes more financial sense.

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.

Why should clearing credit card dues come first?

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.

How much could you save by clearing a ₹10,000 credit card balance?

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: ₹10,000Interest rate: 20% per annumRepayment tenure: 12 monthsMonthly EMI: ₹927Total interest: ₹1,116Total repayment: Approximately ₹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.

What if you invest the same amount through a mutual fund SIP?

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 mutual fund SIP.

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

Monthly SIP: ₹927Investment period: 12 monthsTotal investment: ₹11,124

Estimated maturity value after 1 year: ₹11,718

Alternatively, you could invest the ₹10,000 Diwali bonus as a lump sum in a mutual fund. At an assumed annual return of 10%, it could grow to ₹11,000 in one year.

By using your Diwali bonus to clear the ₹10,000 credit card balance, you avoid paying ₹1,116 in interest. You can then redirect the monthly EMI amount of ₹927 towards an equity mutual fund SIP.

At an assumed annualised return of 10%, this SIP could build an estimated corpus of ₹11,718 in one year. This way, you avoid high-cost debt and put the money towards building wealth instead.

When to use Diwali bonus to start SIP?

For individuals who pay their credit card bills in full by the due date and carry no revolving balance, there is no high-interest debt to prioritise. 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.