Beware! Festive cheer comes with a price tag

Festive season is a time for celebration, cheer and also spending. Many may have budgeted for these expenses in advance and planned accordingly. There may also be some who hadn't and now find themselves in serious want of cash.

Besides, not all can bank on Diwali bonuses to fund festive expenses, except for a few, like those working in the manufacturing sector.

These sectors usually give one month's or half a month's basic salary as bonus during Diwali, which they adjust with the annual bonus at the end of year.

For example, say you are supposed to get Rs 10,000 as annual bonus and you get Rs 1,000 at Diwali. At the end of the year, you will get the remaining amount (Rs 9, 000) as your annual bonus.

For the rest, the option is to liquidate existing investments or take fresh liabilities. Financial planners clearly favour the former.

Their reason: Investments can always be built again. Opting for loans means an additional debt burden that could derail your other finances. Also, festive expenses are discretionary expenses and can easily be curtailed.

While choosing instruments to liquidate, avoid those linked to specific goals like retirement or children's education.

"You can, instead, liquidate any ad hoc or wrong investments," says Sadique Neelgund, a certified financial planner. An example of ad hoc investments would be mutual fund investments made only for tax planning purposes (assuming the three-year lock-in period has been crossed).

Similarly, say you have bought multiple unit-linked

insurance plans and don't need all. You could surrender one or more plans (again assuming the three-year lock-in period is over) and use the surrender amount for funding your expenses. Be careful, though, as it may take at least 15-30 days to get your funds.

Alternatively, you can break your fixed deposits (FDs), if any, to tide over the temporary cash crunch. There will be a penalty, though, in case of premature withdrawal.

Loans are a strict no-no, as the interest payable could be 18-22 per cent for personal loans or 38-40 per cent in case of credit cards (revolving credit). Even gold loans may attract 14-15 per cent interest.

The fund requirement for festive expenses is typically not that large, except if you are buying gold or, maybe, consumer durables.

For purchasing consumer durables, instead of taking loans, you can explore the interest equated monthly instalment (EMI) option. You may have to pay two-three EMIs upfront as down payment, and some small amount as a processing fee.

As for gold, given the high price of the metal (Rs 26,000 for 10g, you are better advised to delay the purchase, unless absolutely necessary.

Finally, the best and the cheapest way of raising cash this festive season may be  borrowing from family. As Arnav Pandya, certified financial planner says, "Borrowing money from family is interest-free, too."