Add a dash of colour to your investments this Holi
Holi, India’s festival of colours, marks the beginning of spring and symbolises the triumph of good over evil. Besides being one of our most beloved festivals, Holi has several crucial investment lessons to offer the savvy investor to maximise long-term wealth creation.
Diversify to make your portfolio colourful
Imagine the dullness of having to celebrate Holi with just one solitary colour! Just as diverse colours make Holi celebrations beautiful, a diversified portfolio can help build wealth over the long term. Moreover, the performance of various asset classes varies across time frames (see chart 1), making it important to diversify.
As the chart below demonstrates, equity performed well in 2006 and 2007 but clocked dismal returns in 2008 and 2011 and was highly volatile in 2020. In such a scenario, allocations towards debt and, to a lesser extent, gold, can limit the downside risk.
Key asset class performance
Equity represented by NIFTY 50, debt by CRISIL Composite Bond Fund Index, and gold by MCX spot gold prices (PM) (per 10 gram)
Returns are absolute, *2021 data is till Jan 29, 2021
Source: NSE, CRISIL Research
In addition, the varying intrinsic natures of asset classes make it important to spread money across different assets. For instance, equity generally offers better long-term returns but high short-term volatility. Debt brings stability to a portfolio but usually offers inadequate inflation-adjusted returns. Gold, like equity, tends to have a positive growth trajectory in the long term but is prone to short-term fluctuations.
Hence, a well-diversified portfolio helps to protect a portfolio in times of volatility while optimising returns across various asset classes.
Let various investment evils be vanquished
Just as the traditional Holika Dahan bonfire marks the triumph of good over evil, Holi is an auspicious time to reflect on common investment missteps and how best to vanquish them. Common errors include trying to time the market, acting on unverified tips or rumours, not regularly tracking or not removing the underperformers, allowing emotional biases to colour your decisions, redeeming investments prematurely or running up unsustainable levels of debt. Falling prey to these missteps can wreck your investment goals.
Patience and perseverance are key
Like thandai and gujiya, two traditional Holi delicacies, successful investments require patience and perseverance. Stay invested for long term and don’t let unexpected setbacks like the loss of somebody close, loss of income, financial market volatility or macroeconomic events like a financial crisis or pandemic throw you off-course. It is important to remain calm, particularly in times of extreme volatility. Mutual funds are a good choice in such situations as they ensure systematic investing (though a systematic investment plan), scheme transfers (through a systematic transfer plan) and redemption (through a systematic withdrawal plan).
To sum things up
This Holi, make some wise investment decisions that can help build wealth over the long term. Then track the progress of your investments regularly to ensure you are on track to meeting your investment goals, rebalancing your portfolio as needed.
Disclaimer: Any comparison/data mentioned in this material is for general information only and not intended to be relied upon as investment advice and is not a recommendation, offer or solicitation to buy or sell any securities, any financial product or to adopt any investment strategy. Information and content herein have been provided by CRISIL Research, a Division of CRISIL Limited, and is to be read from an investment awareness and education perspective only. Recipient are advised to seek independent professional advice before making any investments. The views / content expressed herein do not constitute the opinions of SBI Mutual Fund or recommendation of any course of action to be followed by the reader. SBI Mutual Fund / SBI Funds Management Private Limited is not guaranteeing or promising or forecasting any returns.Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
An Investor Education and Awareness Initiative by SBI Mutual Fund
- Investors should deal only with registered Mutual Funds, details of which can be verified on the SEBI website (https://www.sebi.gov.in) under 'Intermediaries/Market Infrastructure Institutions'.
- Please refer to website of mutual funds for process for completing one-time KYC (Know Your Customer) including process for change in address, phone number, bank details etc.
- Investors may lodge complaints on www.scores.gov.in against registered intermediaries if they are unsatisfied with their responses. SCORES facilitates you to lodge your complaint online with SEBI and subsequently view its status.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.