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The festive season is here and every household is preparing to make this year’s celebrations grand. Before Diwali, there is a tradition of cleaning the house to throw out dirt and dust and to make the home ready for Goddess Lakshmi. This year too most of you must either be planning the cleaning or have already accomplished it to start preparing for the festivities. But did you think about cleaning your portfolio too? 

If you haven’t, you are not alone. Call it a lack of awareness or ignorance, portfolio cleaning is often put on the back burner which ultimately leads to improper financial management. So, this Diwali let’s break this cycle. Clean your portfolio and put your finances in order so that your portfolio does what it is supposed to do – create wealth.
If you are wondering where to start, relax! Here are some ways in which you can clean your portfolio and that too, without any hassle!

Match your investments to your goals

The whole purpose of creating a financial portfolio is to accumulate funds to your financial goals. So, before you start the cleaning process, you need to check if this objective is being fulfilled. Revisit your financial goals and list them down, along with their expected timelines.
Once you have identified your goals, match your existing investments to your goals. See if you have made financial provisions for every goal that you have.

There can be two outcomes which are as follows –

• You have investments matching each financial goal

• Some of your goals are not provided for

In the first case, the next step is to check if the investments are sufficient. With rising inflation and changing needs, you need to revisit the sufficiency of your investment corpus regularly. So, take this time to assess whether your existing investment would help you achieve the goal optimally. If not, you need to invest more so that your corpus does not fall short of the goal. 
If, however, you fall in the second case and you have not invested in all your financial goals, it is not too late to start. Better late than never, right? Start investing for the goals which have not been taken care of. You might have to invest a higher amount initially but as you start investing, you would be able to achieve the financial security of fulfilling your goals.

Get rid of bad debts

Bad debts are those that have a high rate of interest and don’t give any tax benefits. Common examples include personal loans and credit card debts. If you have these loans, you are paying a very high-interest payment which, if cut down, can save you a considerable amount of money. So, get rid of bad debts so that you can save on the interest payments and also stay away from a possible debt trap.

Weed out unprofitable investments

Check the returns that your existing investments are yielding. Compare these returns against the returns offered by similar instruments. For example, if you have invested in a large-cap equity mutual fund, and the fund is consistently underperforming compared to other large-cap equity funds, it might be a time to change. Assess the cost of switching the fund and the underlying taxation and then make an informed choice. You can also consult your investment advisor to understand whether weeding out the fund would be a good choice or not.

Similarly, if any investment is making losses, it might be time to cut your losses and redeem the investment.

So, check the performance of your investments and compare them with other investments in the same category. See if there is any room for improvement. If they are not and there are better alternatives available, you should substitute them with the profitable options for better returns. 

However, before doing so, do check the investment tenure of your existing investments. Some instruments have a minimum investment period and redemption is not possible during such period. So, check if your investment can be redeemed or not. Also, check the investment tenure of the investment that you are switching to. The investment tenure of the new instrument should match your investment horizons.

Check for diversification

A diversified portfolio is desirable since it mitigates risk and increases the profit potential of your investments. So, you should check if your portfolio is diversified and balanced consisting of different types of securities. If not, diversify your portfolio and get exposure to different types of investment avenues for maximum gains. 

Also, check if there is an overexposure to any one type of asset class. For example, if your portfolio is concentrated with equity-oriented investments, add debt instruments to balance it out. Similarly, if your portfolio is debt-heavy, add equity for diversification. Do keep your risk appetite and investment horizon in mind when diversifying.

Check your emergency plan

Every portfolio should have a provision for emergencies. Check if you have made the provision or not. If you have, check its sufficiency. An emergency fund should have at least 3-6 months’ worth of your income stashed aside. If not, start planning to create an emergency fund. Invest in life and health insurance policies to protect against the financial risks of premature death and medical emergencies. 

Moreover, check the liquidity position of your existing investments. If liquidity is low, converting your investments to cash in emergencies might be challenging. So, achieve a healthy liquidity percentage in the portfolio for emergencies.

Start with reviewing your portfolio to spot possible errors so that you can take corrective steps and optimize your finances. If you are finding it hard, take the help of financial experts who can guide you on portfolio cleaning and management so that you can sort your finances. Also, make this portfolio cleaning a part of your Diwali cleaning ritual. Every portfolio needs a regular review and this annual ritual would help you do just that. One stone, two birds!

So, this Diwali celebrates Goddess Lakshmi the right way. Clean your house, your heart, and also your financial portfolio so that the deity can reside in them. Take care of your portfolio and become financially independent.