Financial lessons to glean this Diwali

The festival of lights is less than a month away and celebrations are expected to be extra special this year after a two-year hiatus due to the pandemic. Touted as India’s biggest festival, Diwali is marked to observe the victory of good over evil. Elaborate decorations of homes, offices and public spaces with traditional clay lamps, paper lanterns, fairy lights, the bursting of firecrackers, exchange of gifts with loved ones, purchase of gold and other valuable items, and the preparation of delicacies are essential elements of the celebrations.

Interestingly, the observance of the festival of lights also entails a fascinating array of activities centered on wealth creation and prosperity. Lakshmi, the Hindu goddess of wealth is worshipped on this occasion in all her splendor. On Diwali night a special prayer ceremony orpujais held to invoke the goddess and to invite her into homes and seek her blessings for ushering in prosperity. Diwali symbolizes the beginning of the new financial year as well and this is also a reason why several key Diwali traditions are centered around money. For the investor community, Diwali brings with it several financial lessons.

The power of planning

Diwali is synonymous with new beginnings and thus people enthusiastically buy gifts for their friends and family members as a gesture of strengthening ties and forgetting old grievances. Renovations are also undertaken for homes and offices in the run-up to Diwali.

For all these, preparations start at least a few months in advance so that no stone is left unturned in the celebrations. This can be viewed as a lesson in the importance of planning and preparing well in advance for your financial goals. Efficient money management is the cornerstone of a prosperous life and planning in advance affords your investments the benefits of compounding. A detailed financial plan can not only save you a lot of heartache in the event of any emergency but it also enables you to bounce back easily from such situations.

Making diversity a way of life

Diwali is considered an auspicious time for expensive purchases such as cars, electronics, and the like. It is considered lucky to buy goods during this time, especially those that are considered to increase productivity. Precious metals like gold and silver are purchased in the belief that they will be the harbinger of good fortune. In fact, a separate ritual is also marked for the stock markets on Diwali – on the evening of Diwali, at an astrologically appropriate time, the Indian stock exchanges open during non-market hours for a special trading session called Muhurat. Brokers, traders, and investors partake in trading on the stock exchange with their families while adorning the finest attires.

These rituals serve as reminders of the importance of asset allocation and maintaining diversity in our portfolios. As is the case with Diwali purchases, where needs, financial capabilities, and a desire to uphold traditions drive the choice of a mix of purchases, our wealth creation journey too should be based on our goals and our risk-taking abilities. Maintaining appropriate diversity through proper asset allocation is paramount in ensuring financial stability because the right mix of assets in your portfolio provides a buffer against extreme market conditions and also helps you stay ahead of inflation.

The importance of decluttering

A crucial aspect of Diwali celebrations is the cleaning up of homes and workspaces. From repair work to getting a fresh coat of paints to discarding items and belongings that are no longer in use, decluttering is considered an important way to let go of all things unwanted and obsolete to make way for a fresh start. In the arena of finances too, decluttering from time to time is essential for maintaining sound financial health. As an investor your decluttering exercise should entail getting rid of debt liabilities in a timely and planned manner, minimizing unnecessary expenses, and doing away with investments that no longer align with your goals and investment styles. Money management is an ever-changing landscape and you need to adapt your strategies in accordance with changes in your life situations, needs, income, goals, and economic conditions. Such exercises should entail eliminating any investments or financial habits that are no longer beneficial for you.

Bidding goodbye to darkness

Diwali is symbolic of the power of light over darkness. Lamps are lit in every nook and corner on Diwali to mark the annihilation of darkness and embrace enlightenment. On this occasion, we should also commit ourselves to keeping the shadows of ignorance, indiscipline, and negligence eons away from our finances. Embarking on a path where we constantly strive to improve our awareness about different aspects of financial planning and endeavouring to maintain discipline in the way we handle money is bound to lead us to prosperity. As the saying goes, knowledge is power and the right information can prevent you from making bad financial decisions that would otherwise have pushed you farther away from your wealth creation objectives.

Preeti Zende, a SEBI registered investment advisor and the founder of Apna Dhan Financial Services says, “Diwali is a great time to make a new financial start. It is also a good time to start learning about basic concepts of financial planning such as risk profiling, asset allocation, goal-based investment, rebalancing, etc. Knowing these terms is important for effectively planning your investments. If you are new to the game and want to start investing this Diwali, you should first identify your goals, stipulate the investment horizons then decide the asset allocation means. Then you need to select suitable financial products - for short-term goals one can use recurring deposits, fixed deposits, liquid funds, and money market funds. For mid-term goals, you can add hybrid equity funds. For long-term goals, you can have a blend of index funds, flexicap funds along with small exposures in mid and small-cap funds.”

Action points

• Firecrackers hold a special place in Diwali celebrations and need to be handled with care. Similarly, your investments should also be based on careful considerations of the risks and returns of the asset class in question. The idea should be to stay within your safe limits.
• Gifting insurance coverage to your loved ones can be a beautiful way to show affection and concern. Few things in life can compare with the mental peace that comes with the knowledge of your loved ones having a secure future.

Disclaimer: This article is a part of an Investor education and awareness initiative of Aditya Birla Sun Life Mutual Fund.

All investors have to go through a one-time KYC (Know Your Customer) process. Investors to invest only with SEBI registered Mutual Funds. For further information on KYC, list of SEBI registered Mutual Funds and redressal of complaints including details about SEBI SCORES portal, visit link : https://mutualfund.adityabirlacapital.com/Investor-Education/education/kyc-and-redressal for further details.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.