The Diwali money playbook for investing, spending, gifting and giving

Last weekend at Bizlitfest in Bengaluru, I moderated a session on market hype with two authors whose books help us see the story behind the spiel. In The IPO Trap, Jayant Mundra takes us through how an IPO comes together and why retail investors should look past the buzz before buying in. In Good to Great to Gone, Ajay Sharma traces the rise and fall of businesses and shows how to spot when the story is starting to change. Both books brought home a basic investing lesson. If an investment sounds too good to be true, it probably is.

As tempting as it can be to chase the next big winner, avoiding a loss that could set you back years matters more. That's one reason I favour a portfolio that's easy to keep track of and built around goals I can name, even as the menu of financial products keeps growing. Keeping it simple is easier said than done. Most of us can recall a stock we bought on a tip, a fund we picked because it topped last year's rankings and everyone was raving about it or a new scheme that sounded promising at the time. Each purchase might seem small on its own. Over time, though, they can leave you with a portfolio that's cluttered. That's where Jash Kriplani's festive-season portfolio clean-up lessons come in.

Start by putting all your mutual funds and stocks on one list. Check whether your mix of equity, debt and gold still fits your goals, then look for overlap. If you own two or more large-cap funds, look at what each one holds. You may find that several funds own many of the same stocks, giving you more exposure to companies you already hold. Look at your individual stocks alongside your funds, too. You might own bank shares directly and hold them again through your large-cap funds. And if you've accumulated a long list of small stock positions, each may do little to move your overall returns while making it harder to spot which businesses are struggling. Before you sell anything, factor in the tax implications. So, if you're giving your portfolio a Diwali clean-up, ask yourself one question about each holding. What job is this investment doing in my portfolio today?

The same question applies if you're buying gold. What job will it do in your portfolio? As Shipra Singh explains, gold can help cushion a portfolio when equities fall. During the 2008 financial crisis, for instance, a portfolio with some gold recovered faster than one invested entirely in equities. But gold's returns have been uneven. Over some five-year stretches, it has even lost value.

That's why the experts suggest keeping gold at around 10-15% of your portfolio, primarily for diversification. How you buy gold matters, too. Making charges and buyback deductions can eat into returns on coins. Similar costs apply to gold jewellery too. Gold ETFs are typically the most cost efficient way to invest, but they can trade at a steep premium when demand picks up and this is something you need to be mindful of. Read the full story for more details.

From what we invest in this Diwali to what we spend. Just as the world around us shapes what we expect from our investments, it should also shape what we feel comfortable spending. This year, the festivities come amid rising prices, modest salary hikes and news of layoffs, especially in the IT sector.

A job loss can put an entire household under strain, because there are expenses to be borne even when the income stops coming. And this is where having an emergency corpus can help. What can further add to the comfort is fixing your festive budget and staying within that. Ananya Grover in this story reports that some households are already holding off on big-ticket purchases. Yet in a LocalCircles survey about 16%, or roughly one in six, still depend on their savings completely to fund their festive spending and this is where the problem lies because you risk dipping into the cushion you'd need if your income stopped. This Diwali calls for a more practical approach to festive spending. Read the story for more details.

On gifting and giving, we have two reads for you. First, did you know there's a gift card specifically for insurance? You can load CoverSure's card with Rs100 to Rs10,000, and the recipient can use it to buy or renew a policy. It's one way to help someone who's been putting off getting cover. But what if you want to pay their premium directly? As Aprajita Sharma explains the answer depends on the type of policy and your relationship with the person you want to cover. Term life insurance is particularly strict. If you already transfer your domestic worker's salary to their bank account, it may be relatively straightforward to help them get government-backed cover. If they're eligible and their bank participates in the scheme, they can enrol and have the premium debited from the same account.

And finally this Shefali Anand's story starts with a simple idea for anyone looking to give back this Diwali. Choose a cause you care about, then find an organisation whose work you can see or verify. A neighbourhood nonprofit can be a good starting point because you can visit and see its work first hand. Or ask friends and family for recommendations or search directories such as Guidestar India and Give Discover by cause and location. It's important you donate to credible institutions and therefore basic due diligence is important that these directories can help with. Further, workplace giving programmes can help you find vetted organisations, while crowdfunding platforms can connect you with individuals raising money for specific needs like medical needs.

In this week's Money Guru, Jash Kriplani spoke to Vikas Khemani, founder and chief investment officer at Carnelian Asset Management and Advisors and also the latest entrant in India's ₹82-trillion mutual fund industry. The fund house has launched its first small-cap faund in its equity offering, at a time when the segment has seen volatility amid valuation concerns, global uncertainty and crude oil prices. In the interview Khemani explains why he remains bullish on the market and small-caps.