(Image source: Photo by Austin Distel on Unsplash)
Every year most of us look forward to a Diwali bonus, a monetary reward from the company besides a salary. This bonus comes in handy to meet your regular expenses post festival's expenses like buying gifts and cooking feasts for loved ones and other festive purchases.
It was a good thing to celebrate your festival with the bonus you received; but, in my view, one would be better off deploying it mindfully instead of spending your entire Diwali bonus, by investing it wisely for your long-term financial wellbeing.
A bonus can be utilised as a feeder to your fodder to accomplish your vital envisioned goals (buying a dream home, children's education needs, their wedding expenses, and your own retirement) faster.
It is essential that you decide thoughtfully and deploy your Diwali bonus into a worthy avenue. Considering the recent market rally, the market is having extended Diwali cheerfulness as the BSE Sensex has moved up above the 40,000 mark to reach an all-time high, even the broad base NIFTY index is nearing 12,000 mark (as seen in graph below)
The market has been brimming with the bulls taking over the reins once again because most of the companies posted good results on account of corporate tax reductions, and positive global cues ( the US Federal reserves did announce the expected rates by another 25 basis points, and the easing of US-China trade talks)further encouraged the global indices positively.
Graph 1: Bulls have taken reins? Boxed Mid and small caps
Data as on October 31, 2019
Base taken as Rs 10,00
(Source: ACE:MF)
But there are macro factors pressuring the economy for its sluggish growth, which is on the revival curve from its 5-year low levels impacted by the demand. And at current price-earnings levels of Nifty 50 trading at a multiple of 27x, while Nifty Midcap 100 is hovering around 31x multiple, only due to the industry's heavyweights that have managed to turn around their profits; else the fundamental valuations are not worth the earnings.
Graph 2: Is the PE valuation fair?
Data as on October 31, 2019
(Source: NSE)
Although there is a sense of optimism about India's future growth and for the market to continue to move higher, the positives need to outweigh the negatives. The possibility of volatility cannot be ruled out, so invest your bonus mindfully in a diversified manner, for the long term investment horizon (goal based) and as per your risk profile.
Equity mutual funds are highly diversified, worthy investment option for it tends to provide inflationary-beating returns over a long term and in short term are very volatile. Plus they are professionally managed by an experienced fund manager and you can invest across market segments at low cost.
But mind you, equity oriented mutual fund investment entails risk, large cap funds are relatively safe among equity funds. Reminder, equity is the most volatile, and hence, the riskiest asset class. Small cap funds are the riskiest diversified equity funds, whereas, sectoral and thematic funds are the riskiest equity funds.
Graph 3: Risk-return spectrum
Hence do consider on your risk profile and you can create a robust portfolio of equity funds that will steer you clear of market volatility and provide decent returns.
Don't forget that each one's age, risk profile, the financial circumstance is different. Hence assess your financial needs to devise a worthy strategy and chart out your personalized asset allocation plan.
Table: Indicative Category wise Allocation of Equity Funds
| Age Group |
25-35 |
35-45 |
45-55 |
55-60 |
Above 60 |
| Portfolio Type |
(Aggressive) |
(Moderately Aggressive) |
(Moderate) |
(Moderately Conservative) |
(Conservative) |
| Large Cap |
0% to 10% |
10% to 20% |
20% to 30% |
20% to 30% |
30% to 40% |
| Large & Midcap |
10% to 20% |
10% to 20% |
10% to 20% |
0% to 10% |
|
| Midcap |
30% to 40% |
20% to 30% |
10% to 20% |
|
|
| Multi Cap |
20% to 30% |
20% to 30% |
20% to 30% |
20% to 30% |
10% to 20% |
| Value Style |
|
0% to 10% |
10% to 20% |
20% to 30% |
20% to 30% |
| Small Cap |
10% to 20% |
0% to 10% |
|
|
|
| Aggressive Hybrid |
|
|
10% to 20% |
20% to 30% |
20% to 30% |
This table is for illustration purpose only.
(Source: PersonalFN Research)
However, do note the following points while investing:
-
Clearly define your goals and categorise them as short, medium, and long-term.
-
Do not rush into investing; undertake thoughtful research, know the investment product well, and adopt a holistic approach.
-
Do not speculate. It can be hazardous to your wealth and health.
-
Avoid investing without a plan in place or there are chances your financial plan may go off the course.
-
Select an investment adviser who can put your interest before his/her own.
And to counter volatility and avoid the need to time the market, you should prefer Systematic Investment Plans (SIPs). Moreover, investing in direct plans helps you accelerate your returns.
Also remember selecting winning mutual funds prudently by analysing the fund's performance based on various quantitative and qualitative parameters can help you beat inflation, tide over volatility, and more importantly, enable you to achieve your desired goals.
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