Arti Arora, CFP | Head Financial Planner

Diwali is the time of the year when the ‘clean it up & clean it all’ syndrome becomes omnipresent. Perhaps the association of Goddess Lakshmi with the festival and the fact that we want to welcome her with all the fervour is the motivating factor behind this.

Just as we do this clean up, Diwali could be and in my opinion should be the perfect occasion for us to brush up our financial portfolio too as a way to welcome the deity in literal sense.

With only a week to Diwali, we hereby list out very crisply 5 audit / quality check points for everyone to carry out for their respective portfolios –

  1. A quick Asset Allocation study of the financial assets in your Investment Portfolio – Segregate your investments across the asset classes of Debt (Fixed Deposits, Company Deposits, Bonds, Debt Mutual Funds, PO Schemes, etc), Equity (Stocks, Equity Mutual Funds, Derivatives, ESOPs, etc), Gold (ETFs, Fund of Funds, etc), Cash (Savings, Liquid Funds, etc). Real Estate too could be included here but because of the illiquid nature of this asset class, it is advisable to treat it separately.

    It is very important for us to identify the asset allocation of our portfolio and it is even more important to understand if it is line with our risk tolerance which is a factor of various other things including our attitude to risk, time horizon for our goals, age, etc.

  2. Analyse your weighted portfolio returns for last 6 months, 1 year, 3 years & 5 years – Understanding this is very important to see if there is a need to alter our investment philosophy and of course alter it if the need be. Timely corrective action can save us a big deal by cutting losses and of course opportunity cost is another very important factor.

  3. Portfolio Risk which is another term for standard deviation of your portfolio is another important aspect to be analysed to ensure that you are on right track. A very important factor to keep in mind here is that low correlation between asset classes that you have invested in helps in lowering portfolio risk too. Here, another important factor to consider is your important financial goals or big financial spends. For any spend due in 6 months to a year, make sure you have the required amount invested either in liquid funds or in Bank Savings A/c as one can’t afford to take any risk in this small a time frame.

  4. Brushing up your portfolio, Emergency Reserve equivalent to at least 6 months to a year’s expenses is critical by all means. The Covid times and all the stress it has brought with it is enough for one to understand the essence of maintaining an Emergency Reserve at all times.

  5. Most importantly, This Diwali, give meaning to this whole exercise of Investments and Review by putting a proper plan in place for your investments. This could be the best gift for you and your loved ones where you would not only identify your important life goals but also put an action plan in place to achieve them. And you will achieve them too! Conditions of Implementation & Review apply!!

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