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Top 5 Financial Tips you must follow on the auspicious occasion of Diwali in 2022

Top 5 Financial Tips you must follow on the auspicious occasion of Diwali in 2022

The Diwali season is here and most households are fervently engaged in the Diwali cleaning procedure, a tradition that is carried out every year. While you try to shine every nook and cranny of your home, do you ever think about cleaning your investment portfolio?

Unconventional – yes, irrelevant – no!

Your investment portfolio also needs regular review, just like the ignored places of your home. You need to assess whether the portfolio is aligned with your financial goals and is giving you the best returns. This assessment involves –

  1. Review of existing investments
  2. Plugging of gaps in financial planning
  3. Reducing or eliminating liabilities
  4. Investing in new opportunities.

Cleaning your portfolio is a simple task. Here are some tips on how you can go about doing it –

  1. Say goodbye to bad debtsSome loans are just bad for your finances. They involve high-interest charges, provide no tax benefits and even one default hampers the credit score considerably. Common examples are credit card debts and personal loans. If you happen to have these debts to your name it’s time to weed them out.

    What to do?
    Eliminate your credit card debt by paying the credit card bills, in full, within the due date, every month. For other loans, do not default on EMIs as such defaults are hazardous for your financial health. This is bad for your credit score as well!

    Try and close these debts if you have sufficient funds at your disposal. If not, ensure that their repayment is not disturbed, ever!

  2. Save for those rainy daysEmergencies can be financially threatening. The pandemic is the most recent example. When they strike, you need to be financially prepared.
    1. Emergency Corpus IS important
      So, create an emergency corpus if you don’t have one. Not only theoretically, but you must also have an emergency corpus for any medical or other exigencies.What to do?
      Set aside 3-6 months’ worth of your income for emergencies and invest it in liquid avenues, like liquid mutual funds. Also, remember to update your family about how to access it so that if you are not around in case of emergency, they can use it as well!
    2. Adequate term insurance coverage:
      Moreover, insurance plans are a must. Adequate is the key here, as you might be having insurance but whether it is adequate or not is the point of consideration.What to do?
      Take a good term life insurance policy to secure your family against the financial threat of premature death. Opt for a high sum assured so that your family gets optimal financial assistance in your absence.


      Thumb rule for Health Insurance Coverage: Annual Income + total amount of money spend on hospitalization in the last 3 years

    3. Protect your health:
      Once you are done with life insurance, invest in a comprehensive health insurance policy. It covers your medical bills and proves extremely relevant in medical emergencies.What to do?
      Opt for a high sum insured because the medical costs are rising steadily and optimal coverage is essential for reducing your out-of-pocket expenses. You can step up your existing coverage with a super top-up health insurance plan as well.


      Thumb rule for Term Insurance Coverage: 10 times the annual income

    If you have invested in life and health insurance plans, check their sufficiency, especially when it comes to the coverage level. You need high coverage plans for complete financial security. So, if the coverage is falling short, supplement it now, before an emergency strikes. After all, crying over spilled milk is useless, isn’t it?

  3. Align your portfolio to your goalsOnce you take care of the aforementioned steps, the next step is checking how your portfolio measures up to your financial goals. Identify and list your goals and then earmark your existing investments to them.

    What to do?
    Check if you have planned for each goal and whether the investment is sufficient for fulfilling it. If not, step up your investments to ensure that the goals get fulfilled. Similarly, if any goal is left behind, incorporate it into your portfolio and start investing towards it.

    If your goals have changed over the year, the change should also be incorporated into the portfolio. All in all, you need to ensure that your portfolio is relevant to your financial goals and creates a corpus for them.

  4. Switch unprofitable investmentsMany times, the investments you thought were the best might not prove to be so. In such cases, a switch becomes important. Check how your investments are performing. If there are less profitable instruments or loss-making ones, substitute them with better alternatives.

    For instance, if you have invested in mutual funds, compare their performance with other funds in the same category. If other funds are performing better than your choice, consistently over the years, switch to them. This would help you enhance your returns.

    Remember that switching should be a well-thought-out affair. Consider the switching costs, if any, and the tax implication before you switch. The switch should not cost you more than the profit that you would stand to make from it.

  5. Explore new avenuesLastly, keep yourself open to new investment avenues for portfolio diversification. Assess your portfolio composition and see if you can include other investment avenues for larger exposure. For instance, if you invest in gold, open yourself up towards digital gold or gold mutual funds. Similarly, if you invest in FDs and PPFs, explore debt mutual funds.

    The addition of new investment avenues to your portfolio might prove profitable. Moreover, they would also increase portfolio diversification, a trick to mitigate investment risks without compromising on the returns.

    Checklist for your Diwali Cleaning of your Investment Portfolio:

      Yes No
    Have you repaid your High-Interest Loans, if any? (Credit Card revolving)    
    Do you have a proper well-defined “Emergency Corpus”?    
    Is your family “AWARE” of how/where to access the Emergency Corpus in case of a “REAL” emergency?    
    Is health insurance adequate according to the Thumb Rule?    
    Is life insurance adequate according to the Thumb Rule?    
    Each investment aligned to any specific financial goal?    
    Is your investment portfolio in line with your IDEAL asset allocation?    

    If any of the above answers are NO, then you must revisit your investment portfolio this Diwali, without any further delay!

Keep your asset allocation in mind and align your investment portfolio with your risk profile. This Diwali, start with these steps to get a clean and effective investment portfolio. As the festival marks new beginnings, let it mark the beginning of a better portfolio too.