This Holi Colour Your Investment Portfolio With Rewarding Mutual Funds

Every Indian festival is unique in itself and so is Holi. The festival of colours, is right around the corner, it marks the beginning of spring and the end of the winter season. As per Hindu Mythology, it is celebrated for 2 days the first day of Holi is 'Holika Dahan', where a bonfire is lit, and people surround it and pray that their internal evils be destroyed. This celebration is followed by 'Rangpanchami' on the second day, where people gather and play with powdered colours; by smearing it on each other, and tossing water balloons. Alongside, people also savour the festive delicacy of 'Gujiya' and 'Thandai.' Celebrating this festival is a real way of sharing colours of joy, love and enthusiasm.

Recently, as I was planning the celebration of Holi with my friends, when Rahul showed us all a viral meme on social media about 'Gabbar' a character from the classic Bollywood film 'Sholay' saying 'Holi Kab hai, Kab hai Holi?' This made us all laugh and gave us nostalgia for Holi celebrations back in the day. "Remember how we used to play Holi back then," Shruti replied, "smearing colours on each other's faces and relishing splashes of water that was the genuine essence of Holi."

To which Rahul replied, "Well, over time, the festival has taken on a new significance. Considering the environmental concerns and water crisis, many individuals try to play a Dry and Eco-friendly Holi with the cause of preventing water wastage and use of harmful colours that may be hazards for your health."

Listening to their interesting conversation a thought clicked in my mind that how people today are concerned about playing a safe and eco-friendly Holi, keeping in mind the protection and sustainability of the environment. In a similar vein, you can hold on to the spirit of Holi and take inspiration from the festival to strengthen your investment portfolio. This Holi 2023 splash colours of rewarding and best suitable mutual funds to your investment portfolio.

The interesting thing is that Holi teaches you not just about life or the triumph of good over evil, but also about investing and making good financial decisions. Every colour holds a significance that can relate to various types of mutual fund investments in your portfolio.

1. The Colour Orange        - Add Equity Mutual Funds to your portfolio

Orange colour is associated with optimism and energy, it conveys a message of positivity and growth. Orange is a vibrant colour which resonates with investment in equities, which are vibrant in nature and have the potential to grow and offer significant returns in the long run. Allocating equity funds to your investment portfolio would be highly beneficial for investors to generate inflation-beating returns. You can add this colour by making investments in equity mutual funds, with this, you will not only earn the benefit of capital appreciation but also would be able to achieve your financial goals with ease.

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There are various sub-categories under equity-oriented mutual funds.

• Large-cap Mutual Funds -

  Large-cap funds invest in stocks of companies which are in the top 100 list by market capitalisation and stock market evaluation. Since these funds are stable and carry a relatively lower risk, it is a good investment choice for investors who have just started learning about the equity markets. Large-cap funds invest at least 80% of their corpus in high-quality blue-chip companies and are capable of offering decent returns.

• Index Funds or ETFs -

  Index funds and Exchange-traded funds (ETFs) are passively managed mutual funds, designed to mirror market indices like the Nifty 50 index or the S&P BSE 500 or any other specific index and provide investors with exposure to a diversified fund across sectors. These funds minimise fund managers' intervention by simply replicating the performance of an underlying index. This lowers the stock-selection risk for those who are new to mutual funds and offers respectable returns at a reasonable price.

• Fund of Funds Schemes -

  Rather than investing directly in stocks, bonds or other securities 'Fund of Funds' (FOF) are designed to passively invest in other mutual fund schemes. Fund of Funds offers a portfolio of equity funds picked by professional fund managers and their team, who even track it closely, and take timely entry and exit calls without worry about the tax implications.

  Diversification and risk mitigation are benefits of investing in several mutual funds, which in turn invest in various underlying assets or asset subclasses. For those new to investing in mutual funds who lack experience choosing the best equity funds, this is a great medium.

• Equity Linked Savings Scheme (ELSS) -

  ELSS is similar to any other diversified equity mutual fund except that it comes with a 3-year lock-in period and tax advantage. ELSS funds are an excellent option for salaried individuals starting their investment journey and looking to save some tax. These funds have the potential of giving a higher rate of returns compared to other tax-saving options under 80C like NPS, PPF etc.

  Investment in such equity-oriented mutual funds makes it easy for many investors, especially novice investors to start investing right away in a diverse portfolio and begin their journey towards wealth creation.

2. The Colour Green        - Add Debt Mutual Funds to your portfolio

The colour green is the colour of stability and balance, and in the case of mutual funds, investment debt is considered to be less volatile than equity mutual funds. Debt mutual funds help in maintaining the balance in the portfolio even in turbulent times when the equity portion is highly volatile. So you must add the colour of balance, i.e, green to your portfolio by investing in debt mutual funds to provide stability to your portfolio. However, there are various sub-categories of debt mutual funds and the closest that comes to conventional FDs in terms of risk is liquid funds.

• Liquid mutual funds -

  These are among the most stable kind of debt mutual funds. Liquid funds invest in fixed-income securities that have a maturity period of 91 days. As a result, the interest rate risk and credit risk attached to these funds are also low as compared to other debt mutual funds. The short duration of liquid funds allows suitable liquidity to your portfolio and tends to produce stable returns because it is less susceptible to changes in interest rates.

3. The Colour Yellow        - Add Gold Mutual Funds to your portfolio

The colour yellow resembles to Gold which is considered one of the most valuable precious metals in the world, and it continues to be a popular investment for ages. Investment in gold is a standard hedge against inflation over a long period and it is an asset that is regarded as a safe haven and generates significant returns during the time of uncertainties in the economy. It is suggested that you add yellow colour to your portfolio by allocating a small portion to mutual funds that focus on investing in gold securities.

You may choose from sovereign gold bonds and gold mutual funds to invest in paper gold - these are the best way to invest in gold instead of buying physical gold and carrying the risk of storage and theft. Gold mutual Funds come typically in two forms: a Gold Exchange Traded Fund and Gold Savings Fund.

• Gold Exchange-traded funds (Gold ETFs) - Gold ETFs aim to track the domestic price of physical gold; they are passively managed and make direct investments in Gold. The investment objective of a gold ETF is to generate returns broadly in line with the domestic price of gold.

  To invest in Gold ETFs, all you need is a Demat Account and Trading Account, and the purchase order can be placed through your broker or directly by you via investing apps. The units purchased will be backed by 0.995 finesse of physical gold by the respective fund house. Notably, investments in Gold ETFs cannot be made through a SIP route.

• Gold Savings Fund - It is a Fund of Fund scheme investing in underlying Gold ETFs, which benchmarks the performance against the prices of physical gold. It strives to produce parallel returns that closely resemble the underlying Gold ETF. Hence, the investment objective of a Gold Savings Fund is to generate returns that closely correspond to returns generated by the underlying Gold ETF. Investment in these funds does not require a Demat account. Gold savings funds allow you to invest disciplined manner through the SIP route with a sum of as little as Rs 500.

4. The Splash of multiple colours                 - Add Diversification to your portfolio

How boring it would be if we played Holi with one single colour, similarly, it is crucial to diversify your investment portfolio with mutual funds across asset classes and market caps. You should not put all the eggs in one basket, diversification is the key to successful investing and mitigating the overall portfolio risk. It's the myriad colours that make the Holi festival so unique and enjoyable. Just as you indulge in different colours, remember to apply the same lesson to your investments. As you design your portfolio, spread investments across asset classes and market caps, this will help optimise risk-adjusted returns.

No two asset classes perform in the same direction, your portfolio exposure to one single asset class is unlikely to generate better returns. Thus, diversification helps the portfolio to balance the risk exposure thrown in by market-linked assets while earning above-average returns.

• Balanced Advantage Funds - Invests in both equities and bonds but has no asset allocation requirements. It allows fund managers to adjust asset allocation depending on the prevailing market conditions.

• Multi-Asset Allocation Funds - invest a minimum of 10% in at least 3 asset classes such as a combination of equity, debt, and gold. Different asset classes have lower correlations and behave differently in various phases of the economy offering better risk-adjusted returns.

5. The Colour Red        - Eliminate the underperforming mutual funds

'Holika Dahan' symbolise the victory of good over evil. The colour red signifies a warning sign, it highlights the underperforming assets that may slump your portfolio returns. As you plan to add colours to your portfolio, also ensure to identify the red colour that highlights the consistently underperforming holdings and eliminate them.

There can be several reasons behind your fund's declined performance including market correction, if you evaluate a consistent underperformance you may exit the scheme and replace it with a worthy mutual fund as per your suitability.

Interestingly, the festival of 'Holi' falls in the crucial month of March, which marks the end of a financial year and the beginning of a new chapter. It is also a time to reflect on our finances and investment plans. Just as we celebrate the festival by burning the Holika and applying vibrant colours, you can use this occasion to enhance your investment portfolio by adding various colours of mutual funds.

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To conclude...

Just as you take precautions by choosing organic colours to protect your skin and hair while playing Holi, following a sensible approach is a must in managing your hard-earned money. It is always beneficial to make investments based on certain goals rather than investing haphazardly.

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.

She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.