Let’s explore how you can start your mutual fund investment journey this Diwali while making the most of the festive energy.
Why choose mutual funds this Diwali?
Diwali represents a time of fresh starts, and what better way to begin anew than by investing in your financial future? Mutual funds provide an excellent opportunity to take advantage of market opportunities and disciplined investing, especially during a season that is considered auspicious for making important financial decisions. Here’s why mutual funds could be the perfect choice this Diwali:
Disciplined investing with SIPs
Just like Diwali marks the start of a new year for many, it’s an ideal time to start a Systematic Investment Plan (SIP). A SIP helps you invest small, regular amounts in mutual funds, much like lighting one diya at a time until the entire house is illuminated. It embodies the essence of Diwali—steady, thoughtful progress leading to prosperity. As per AMFI, in 2023, the SIP book hit a record ₹14,291 crore per month, showing how disciplined investing through SIPs has become a powerful tool for wealth creation among Indian investors. This Diwali, make a commitment to disciplined wealth-building through SIPs.
Invest via lumpsum
Diwali bonuses and festive gifts often lead to an influx of extra cash, making this the perfect time to invest a lumpsum amount. Like buying new clothes or decorating your home for Diwali, a lumpsum investment gives your money a longer time to grow and helps you take advantage of festive market sentiment. For instance, Nifty 50 historically sees a positive trend around Diwali, and investors may benefit from this optimism. When you invest during this positive market period, driven by optimism and higher consumption, your money has the potential to grow faster, symbolizing the prosperity that Diwali brings to your home.
Market opportunities during Diwali
The festive season is often accompanied by favorable market conditions. Diwali, being a period of optimism and hope, often sees positive market trends. In 2023, for example, the Nifty 50 index saw a surge of nearly 5% in the months leading to Diwali, driven by positive investor sentiment and increased consumption. Just as Diwali celebrations bring light and positivity into homes, investing in mutual funds during this time can help bring financial prosperity into your life. By investing in equity, debt, or hybrid mutual funds during Diwali, you can benefit from this seasonal optimism and the growth opportunities it brings.
Steps to start investing in mutual funds this Diwali
To align your financial journey with the spirit of Diwali, follow these steps:
1. Set clear financial goals
Diwali is the perfect time for reflection—both spiritually and financially. Use this time to set clear financial goals, whether it’s saving for your child’s education, retirement, or buying a home. Just as Diwali rituals bring clarity and purpose, setting specific goals will guide your investment choices and ensure your money works towards achieving a meaningful objective. According to a 2023 survey by HSBC, 69% of Indians rank saving for their children’s education and retirement as top financial goals, making it essential to plan your investments with these milestones in mind.
2. Assess your risk tolerance
Like preparing for Diwali, where every detail from cleaning the house to arranging the festivities is planned according to your preferences, your mutual fund investments should also reflect your personal risk tolerance. Whether you’re comfortable with market fluctuations (equity funds) or prefer stability (debt funds), Diwali is an ideal time to assess how much risk you’re willing to take and choose funds accordingly. For instance, large-cap equity funds generally carry lower risk than small-cap funds, making them more suitable for conservative investors.
3. Choose the right mutual funds
After setting goals and understanding your risk tolerance, the next step is to choose suitable mutual funds. Diwali is not just about welcoming prosperity into your life; it’s about balance. In the same way, balance your portfolio with a mix of equity, debt, and hybrid funds. This diversification, much like the balance between Lakshmi and Ganesh in Diwali rituals, ensures both growth and protection. A balanced portfolio can help you achieve stable long-term growth, with the average large-cap fund delivering an annualized return of 12-14% over the past five years (2024).
Common mistakes to avoid when investing this Diwali
While Diwali is a time of new beginnings, it’s important not to let the festive excitement cloud your judgment. Here are some common mistakes to avoid:
1. Timing the market
Diwali, with its vibrant optimism, may tempt you to try timing the market for short-term gains. But much like the tradition of lighting diyas one by one, building wealth is about consistency over time. According to data from S&P, trying to time the market results in lower returns for most investors compared to those who stay invested for the long term. A SIP strategy will serve you better in the long run than trying to predict market highs and lows.
2. Ignoring mutual fund fees
Just as you wouldn’t ignore the quality of the diyas or decorations you buy for Diwali, don’t overlook the fees associated with mutual funds. Whether it’s expense ratios or exit loads, these costs can eat into your returns. Ensure the funds you choose have competitive fees, allowing your investments to grow without unnecessary drag. On average, the expense ratio for equity mutual funds in India ranges between 0.5% to 2.5%, which can significantly impact long-term returns if not considered.
3. Emotional decision-making
Diwali, with its emotions of hope and joy, can sometimes lead to impulsive investment decisions. Like how we carefully plan our Diwali celebrations, it’s essential to approach investing with a rational, well-thought-out strategy. Stick to your long-term plan and avoid making decisions based on short-term market trends or festive enthusiasm.
4. Lack of diversification
Diwali is a festival that celebrates diversity, from different rituals to various sweets. Similarly, your portfolio should be diversified to protect against market volatility. Spreading your investments across equity, debt, and hybrid funds will ensure a balanced approach, just like how Diwali rituals bring balance and harmony into our lives. AMFI data shows that well-diversified portfolios have outperformed single-asset portfolios by 2-3% annually over the long term.
Final thought
Diwali is an auspicious time for new beginnings, and what better way to celebrate than by securing your financial future with mutual fund investments. Whether through disciplined SIPs or strategic lumpsum investments, this Diwali offers a window of opportunity to align your financial goals with the festive spirit of prosperity and hope. By following a well-thought-out strategy and avoiding common mistakes like timing the market, ignoring fees, or emotional investing, you can set yourself on the path to long-term financial growth. As Diwali brings light into your home, let mutual funds bring financial brightness into your future.
(The author Chakrivardhan Kuppala is Cofounder and Executive Director, Prime Wealth Finserv.)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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