Financial Lessons to Learn from Diwali

Diwali, one of India’s biggest festivals, has a lot to offer. It brings light and colors 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 key investment lessons that investors can learn from Diwali.

1. Illuminate Your Life with Financial Literacy:

Diwali is celebrated by lamps that light up the darkness around them. A lamp here resembles knowledge that eliminates darkness. Likewise, you should also decrease the financial and investment-related obscurity or ignorance by reading more about mutual funds, investment options, and financial markets. Learn the art of managing the money and empower yourself to make sound financial decisions.

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.

2. Diversify Your Investments

Diwali is symbolic in offering a variety of things during the celebrations. From shopping for new clothes to home decor, lights, sweets and 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.

3. Plan in Advance

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 to ensure you reach your goal easily.

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.