Take stock of your portfolio this Diwali

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The greatness of a culture is often depicted in how a community celebrates its festivals. In India, Diwali is celebrated on a grand scale with families preparing for the same, weeks in advance.

Festivals in India have spiritual roots but have now been reduced to a mere shopping extravaganza. From traditional purchases like new clothes, jewellery, consumer durables, Indians are expanding their festive shopping list to include more aspirational investments in luxury homes, fancy cars and exotic holidays. No doubt, the festive season turns out to be the most expensive time of the year for many, derailing them from the path of prudence and wise financial choices.

Let’s take a look at some of the festive activities to help you create a healthy portfolio, this Diwali:  

Clean your portfolio as you clean your house: Diwali is an auspicious time to update your financial plan. We often hold onto our underperforming stocks in the faintest hope of those turning around. Any portfolio skewed towards underperforming asset classes, like FDs or gold, would produce low returns on a weighted average basis. With a higher share for these assets in the portfolio, the very purpose of beating inflation by a wide margin would be defeated.

Or otherwise, the equity portion of the portfolio will have to shoulder the additional burden of pulling up the total returns above inflation which, given the volatile nature of markets, may not be guaranteed always.

Thus, it’s essential to spring clean your portfolio by divesting in underperforming asset classes.

Adorn your investments with Gold ETFs: Indians have a tradition of buying clothes, electronics, especially gold in the form of jewellery around Diwali. They tend to stay invested in gold despite evidence that clearly points out to the changed realities resulting in failure to achieve significant inflation adjusted return or ‘real returns. Gold as an investment is a store of value, influenced by inflation. It is not an income generating asset and pays neither dividend nor interest. Instead, in the form of jewellery, it comes with the disadvantage of consumption and higher premium in the form of making charges and maintenance costs such as safety vaults or bank lockers. Due to the impurity risk and making charges, the resale value may not be at prevailing market prices.

Therefore, if at all one wants to invest in gold, it should be through the electronic medium in the form of e-Gold or Gold ETFs that can be bought and sold on the exchange like any stock, without having associated risks of purity, safety and liquidity. Further, one can look at Sovereign Gold bonds too, which offer some return, though very low.

Diversify your portfolio as you decorate your Rangoli with colours: It is essential for individuals to diversify their investments across asset classes. One should allocate one’s investments across various asset classes. And specifically within financial asset classes, diversify across sectors and stocks. Diversifying enables one’s portfolio immune to market cycles and maximises the returns by minimising the risk. The strategy ensures predictability of returns as and when one asset class or a subset of that particular asset class falls, there are others to compensate for the loss.

Financial gifts for loved ones: An ‘investment as a gift’ is a valuable way of offering your care to loved one during these festive times, as these have the potential of growing in value, with the passage of time. SIPs run on the philosophy of ‘Save First, Spend Later’ which makes it a fitting gift for the occasion. One need not have a corpus for the same. It facilitates a small amount of investments, which can be done quarterly or monthly. It can also be started with a small amount of Rs 500 or Rs 1,000 per month. Later on, the value can be increased with a ‘Step-up SIP facility’, should the investor wishes to increase his monthly deposit amount. SIP involves investing a fixed amount, big or small, at regular intervals in the equity markets, irrespective of the price of the stock purchased.

Investing regularly in small amounts helps investors tide the market movements and befriend volatility seamlessly. To kick-start your loved one’s investment journey, it may be better for one to invest in a mix of equity-based mutual funds or equity SIPs with an Index ETF, before starting to actively invest in stocks.

This Diwali, as you light the ‘diyas’ under an illuminated sky of fireworks, celebrating the festive spirit in the warmth of your family, don’t forget to take a conscious step towards illuminating your future with the right investments for a secure tomorrow, for you and your loved ones!

(The writer is the MD and CEO at Axis securities)

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