Diwali is round the corner. The festival of lights brings joy and prosperity with it. We invest on this auspicious occasion with the mindset that the investment will multiply our wealth in many folds. While markets haven’t been performng too well in the recent past, nonetheless, investors are still hopeful. Needless to say that when investments are made with emotion or in haste, it frequently deteriorates the principle itself. To save oneself from the wrong investment decisions, one must plan his or her investments before making one.
Effective investments are those, which are made after analysing your goals, keeping in mind the tenure and risk capacity besides other factors that contribute to a prudent financial planning. A well-diversified and planned investment helps investor reap better returns while effectively maintaining the risks associated with them.
Let’s study the options for your investment this Diwali. These may include the following:
1. Gold or Silver : The yellow metal or the silver star are the most common investment options during the festive season. It has been inherited since generations and is still a chosen option for many Indians. These precious metals are the heart of the Indian family investment portfolio as it is assumed that their prices are forever rising but, reality is starkly different. Since there were not too many options earlier, it was a blind man’s instant decision to buy these metals. However, with many options to choose from today, consider your complete portfolio and invest not more than 5–8 per cent in these metals. Since it is well known that metal prices are inverse to equities and are cyclical, the investment would hedge the overall risk and give your returns a boost if there is any dent on your equities or mutual funds portfolio.
2. Mutual Funds: If liquidity and professional management is the focus of your portfolio, then look no further than mutual funds. Mutual funds are popular nowadays due to the handsome returns, diversification, ease and flexibility of investment. As India is one of the fastest growing economies, regular investment in mutual funds, will generate a sizable corpus over a long-term. You can choose the right product in debt or equity or hybrid funds, based on your goals. As mutual funds are subject to market risks, it is advised to be careful while investing in them and choose only those that match your goals, investment period and risk capacity. Consult a financial advisor before plunging into one.
3. Equities : Investment in direct equities portfolio could generate multi-fold returns in the long-term. Equities are instruments to own a part of your favourite companies that you find promising. With growth in corporate profits thereby reflecting the share price, the portfolio grows as well. As all investment options have the risk of price erosion, equities carry the highest risk. However, if you are an expert who has a sound knowledge of markets and investments, equities can be super rewarding.
Diwali is closely attached to stock markets. Both Indian exchanges, NSE and BSE open the trading window for about an hour on the eve of Diwali and term it as ‘Muhurat Trading’. It is considered auspicious to invest on this day. Regardless of these emotions, study your stock pick well or take the advice of a financial adviser. Remember, a stock that works for your neighbour will not necessarily work for you. For an average risk taker, 15-20 per cent allocation would be an ideal allocation in the equity segment. Equities have the same liquidity as mutual funds. It is advised to invest in only quality companies and not to forget about the risks associated.
4. Real Estate: Real estate investments in India carry huge sentimental value. Once presumed to be one of the safest investment options, its sheen has somewhat started fading away in the recent times. Real estate may turn out to be a good and stable investment which could give higher returns in the long run due to its cyclical nature. However, in the short-term, when prices are not lucrative, renting out properties could save you some extra penny compared to the EMI. Real estate is not a Diwali event. It will require multiple years of Diwali to make it a fruitful one. Ideally, do not allocate over 25-30 per cent of your total portfolio towards real estate investments. Remember, if you own a house, consider it as your investment and a part of your portfolio rather, a dead one as it never earns you anything unless sold. Liquidity is also a huge factor to consider when investing in equities.
Do not put all the eggs in one basket.
Such an act increases risk, and one may lose a considerable portion of his or her investments. So this Diwali, make a plan before investing and do not rush or get carried away to put all your money on hearsay. It is advised to have an expert’s guidance who could better allocate your investments on good returns and lower risk.
The author is the Founder of Investonline.in