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Aditya Damani

Founder, Credit Fair

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Smart Financial Investment For This Diwali

Depending upon an investor’s financial goal, risk appetite and the duration—one can choose from several options currently available including—mutual funds, equities, commodities and real estate or from a host of government securities and bonds.

Photo Credit : Pic Courtesy: Pixabay,

The festive season in India marks one of the best times to embark on financial investments’ journey—whether it is buying commodities like gold or silver or investing in the latest upcoming stock, investments options are multiple this Diwali.

Depending upon an investor’s financial goal, risk appetite and the duration—one can choose from several options currently available including—mutual funds, equities, commodities and real estate or from a host of government securities and bonds.

Having a diversified portfolio is of utmost importance for an investor.

But, why is it so?

Well, there are few reasons: it is because all types of asset classes hardly perform in tandem – different asset classes move in different directions at different times. One might assume that since a particular mutual fund is performing well at a particular time, it is best to invest in it then – however timing the market is very challenging.

For example, often it might happen that while equities markets are going down, gold and silver prices are going up! Hence allocating assets across a variety of investment tools is essential as it helps an investor stay afloat even during trying times.

Now, the world of financial investment offers an array of asset classes to choose from. The major ones that make your portfolio worthwhile, include the following:

Equities/Stocks: Directly investing through equities in the capital markets

Mutual Funds: Investing in mutual funds through the systematic investment plans (SIP) instruments

Fixed Income: These include fixed deposits, debt securities, money markets, government and corporate bonds.

Commodities: Metals like gold and silver make for some of the best investments in asset classes during Diwali.

Real Estate: Despite several opinions, real estate investments make for some great returns. Investing in real estate investment trust (REITs) this Diwali is a good option, especially at a time when crude prices are almost skyrocketing. REITs will not only ensure better returns but also ensure the income from those will not be taxed, since the government has given them a pass-through status.

As an investor, if you are looking at choosing certain asset classes, it is best advised to select them depending upon your risk appetite, goals and time horizon.

Now, as far as best investment tools are concerned in terms of time horizon—mid or long term, open-ended mutual funds SIPs are one of the best.

Monitored by a fund manager, one can easily start an SIP with a minimum amount of Rs 500. There are several options that an investor can choose from. Open-ended funds are offered by almost all fund houses and other major financial institutions including banks.

Recently the capital markets witnessed an all-time high; however if you are looking at debt mutual funds in order to diversify your portfolio, it is rather advisable to look out for other options instead of the former.

Since last year’s Franklin fiasco following first phase of lockdown, the SEBI ended up introducing certain strict rules especially for top-level fund managers and other guidelines for the debt mutual funds space. It stirred the industry and retail investors’ sentiments took a down turn.

However, remaining invested is necessary especially when a market correction is on the way. And in this scenario other alternative investment assets are necessary to build up a strong portfolio that can help yield good returns. Some different asset classes that are worth considering this Diwali include:

Non-convertible debentures: - Non-convertible debentures (NCDs) are fixed-income instruments, issues by highly-rated companies as public issue targeted at long-term capital appreciation. These instruments offer a relatively interest as compared to the convertible ones.

Market-linked debentures (MLDs): - These are a kind of debt instruments where the pay-off is not regularly defined, but linked to underlying security or index such as BSE Sensex or 10-year government securities. These are formed by wrapping derivatives and NCDs. One of the biggest benefits of investing in MLDs is the major tax advantage offered. These are taxed only at 10% if sold in the market after a year.

Sovereign gold bond: - These kinds of bonds are usually considered as substitutes for accumulating physical gold and are G-securities denominated in grams of gold. The Reserve Bank of India issues the bonds on behalf of the Government of India.

Diwali is one of the best times to make some good financial investments. Currently, the country’s economic landscape is also conducive to go ahead with some major investments.

So, consult your financial advisor, define your goals and then take the plunge just as you gear up for Diwali celebrations.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house



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