The greatness of a culture is often depicted in how a community celebrates its festivals. This much-anticipated time of the year puts everyone in a cheerful mood, making them more willing to indulge as well as splurge to make the festivals a memorable affair. In India, the Diwali season is celebrated on a grand scale with families preparing for weeks in advance.

Festivals in India are as much about religion as also about indulgiing in a shopping extravaganza. From traditional purchases such as new clothes, jewellery, consumer durables, Indians are now expanding their festive shopping list to include more aspirational investments in luxury homes, fancy cars and exotic holidays. No doubt, the festival season turns out to be the most expensive time of the year for many, derailing them for a while 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 festive season.

An “investment as a gift” is a valuable way of showing your care for your loved ones during these festive times as these have the potential of growing in value with time. Roudra Mitra

Clean your portfolio

The festival season is an auspicious time to update your financial plan and take stock of your accumulated assets, just as you clean up and decorate the house for the celebrations. We often hold on to our underperforming stocks in the faintest hope of those turning around.

Any portfolio skewed towards stagnant/underperforming asset classes, such as 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 the markets, may not be guaranteed always.

Therefore, it is essential to spring clean your portfolio by divesting in underperforming asset classes. Cut off our portfolio’s dead branches and plant that money into something that has a better chance of blossoming.

Adorn with gold ETFs

Indians have a tradition of buying clothes, electronics, especially gold, during Diwali time. They tend to stay invested in gold despite such purchases failing 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. Gold is relatively unproductive in nature. 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. Because of the impurity risk and making charges, the resale value may not be at prevailing market prices.

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, if one wants to buy gold as an investment, one can look at sovereign gold bonds, too, which offer some return, though very low.

Add more colours

It is essential for individuals to diversify their investments across asset classes. And specifically within financial asset classes, diversify across sectors and stocks. Just as a balanced diet is important to stay healthy, maintaining a balanced asset allocation in a portfolio is vital for your portfolio’s health.

Diversifying makes one’s portfolio immune to market cycles and maximises the returns by minimising the risk. The strategy ensures predictability of returns as when one asset class or a subset of that particular asset class falls, there are others to compensate for the loss.

Make financial gifts

An “investment as a gift” is a valuable way of showing your care for your loved ones during these festive times as these have the potential of growing in value with 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 small amount of investments, which can be done quarterly or monthly. It can also be started with a small amount of Rs 500/1,000 per month. Later on, the value can be increased with a step-up facility, should the investor wish to increase his monthly deposit amount.

SIPs involve 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 is not only convenient but also helps investors tide themselves 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.

As you immerse yourself in celebrating the festive spirit with 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 MD & CEO, Axis Securities