Diwali declutter: 4 ways to strengthen your finances

Diwali is a time of home renovations and financial reorganization. Besides tidying up one's living space, many investors consider reviewing their investment portfolios to optimize their financial choices. This article presents four ways to strengthen your finances during this festive season.

First, assess insurance-cum-investment policies. Vaibhav Wandre, a Navi Mumbai-based engineer, discovered that some of his life insurance-cum-investment policies were yielding minimal returns of only 5-6%. He chose to surrender these policies and prepay his home loan, freeing up Rs.3 lakh to invest in equity mutual funds.

Second, scrutinize your portfolio for poorly performing investments. Tanushri Bhatkar, a software engineer from Mumbai, identified a couple of flexi-cap schemes yielding around 6%. She redeemed these funds and applied the proceeds towards prepaying her home loan.

Third, evaluate your insurance portfolio, especially if you have dependents. Preeti Zende, founder of ApnaDhan Financial Services, emphasizes the importance of adequate term insurance as the foundation of your protection portfolio. The sum assured should ideally be 10-15 times your annual income, depending on your family's needs and other factors.

Finally, review your portfolio for over-diversification. Pankaj Mathpal of Optima Money Managers warns against the rush to invest in the latest investment themes or newly launched funds. Instead, focus on reviewing each fund against your financial goals, investment horizon, and risk profile. Remove overlapping schemes and funds that have consistently underperformed to avoid unsuitable risk exposure and unnecessary transaction costs.