5 Important Financial Lessons to Learn from Diwali Festival
By Akhil Chugh
Date November 7th, 2021
Diwali, one of the biggest festivals in India has a lot to offer. It brings lights and colours to everyone’s life. Apart from the cheer and optimism, the festival of lights also offers us lessons in financial investment and planning. Let us look at some of the key takeaways that investors can learn from Diwali.
1. Start planning early:
Diwali is one of the most-awaited festivals in India. People start planning for it months before the actual festival. Right from renovation to decorations to gifts, everything is planned to avoid hiccups at the last moment. The same goes for investments as well. You need to plan in advance to ensure you reach your goal with ease.
For example, if you wish to build a corpus for your retirement, ideally planning must start from the day you start earning. Similarly, to accumulate funds for your child’s higher education or make a down payment for your dream house, it’s essential to plan early and make investments as soon as possible.
If you invest early, you can generate better returns. Let us look at the below illustration to understand how starting early can work to your advantage in creating a larger corpus (> 2x) with the same amount of equity mutual fund investment (Rs 36 lakhs) beating inflation in the long run.
Rohit and Mohit are friends who have just started their career at 25 and plan to retire at 55. Rohit starts investing ₹10,000 every month via SIPs in equity mutual funds from age 25 and continues to do so until he is 55 years old. Mohit, on the other hand, starts monthly SIPs of ₹15,000 in equity mutual funds from the age of 35 and continues to do so until he retires at the age of 55. If both earn, say, 12% CAGR on their mutual fund investments which is Rs 36 lakhs, Mohit would accumulate Rs 1.4cr at the retirement age while Rohit would accumulate Rs 3.1cr which is almost 2x Mohit’s wealth. This is the magic of compounding.
Thus, the longer you stay invested the more money you will make. The best way to take the benefit of compounding is to start saving and investing wisely as early as possible in equity mutual funds aligned to your financial goals. The earlier you start investing, the greater will be the power of compounding.
2. Goal-based investing:
At the time of Diwali, people buy gifts for relatives and friends based on their age group, taste or preferences so likewise the investments should be based on your various financial goals. You should categorize your goals such as buying a house, child’s education, buying a car, retirement or a vacation abroad.
Goal-based investing is all about identifying your financial goals, setting a timeline for each one of them, and investing for them regularly to be able to reach them. Mapping out all your needs gives you a clearer picture and the time for which you need to stay invested to achieve each goal. Even the type of risk you should take will be defined by your goals. The importance of goal-based investing is that it not only gives you a good investment strategy, but also a direction to achieving your dreams and in the process making your future stress-free.
3. Review & clean your portfolio regularly:
A few weeks before Diwali; everyone begins to start their yearly ritual of cleaning their homes & offices and disposing of goods they no longer require. New items are bought or purchased which can be helpful for us in the future.
Apply a similar approach to your investment portfolio as well. Review your portfolio and identify mutual fund investments that are not performing well. Ensure that the existing investments are in sync with your goals or objectives. Just like in our homes, there are goods that are no longer needed and are disposed of, our portfolio too could consist of ill-performing investments that could adversely affect our returns. Therefore, one needs to eliminate them too.
4. Safety is crucial:
Although all seems to be beautiful during the festival of lights, there could be uncertainties such as the firecrackers backfiring or malfunctioning. We need to take all the needed measures to keep ourselves and our families safe.
The same planning has to be implemented with respect to one’s financial health. Take the advice of a financial expert before making any investment in schemes. There are a number of schemes that look attractive based on their short-term performance but they can turn out to be a disaster in the long run.
Always consult an expert before making any mutual fund investments to make an informed and wise decision to create wealth in the long run.
Get in touch with the Net Brokers Team to help you in your financial planning.
5. Diversification is the key:
Diwali is symbolic in offering a variety of things during the celebrations. From shopping for new clothes to home decor, lights, sweets, rituals, there is a lot associated with Diwali, and this variety makes the festival even more fun.
Similarly, proper diversification in your investment portfolio helps you to reduce risk and enjoy the benefit of various financial instruments. Diversification is key to a successful investment journey. Never put all your eggs in one basket. Try having a diversified portfolio within investment circles. Depending on your risk appetite & financial goals, decide on the percentage of the portfolio that you want to invest in Equity Mutual Funds, Debt Funds, Bonds etc.
Conclusion:
The festival of lights teaches us various financial basics that can be implemented in real life to have robust financial planning. It’s time to get to an auspicious start, plan your investments, and have a financially well-planned life!
If you have any queries, get in touch with an expert team of Net Brokers to help you in your investment journey to attain your financial goal efficiently.
Download our mutual fund app & start investing for your long-term financial goals.
Happy investing!