Apart from health fears and continued uncertainty, the COVID-19 pandemic has caused economic consequences that none of us could have foreseen. Amidst job losses, salary cuts, and a significant drop in incomes, how can people ensure financial stability and health?
Financial experts Gaurav Dua, Senior VP Head, Capital Market Strategy and Investments, ShareKhan; Satheesh Krishnamurthy, EVP and Head – Affluent Business (Wealth Management and Private Banking), Axis Bank India; and Rohan Arinaya, Co-founder, Merican Consultants; weigh in and decode the steps one can take to manage personal finances.
Be prudent and disciplined
The first advice for anyone is simple and well known: go into saving mode and cut out discretionary spends. “Be very choosy on what you want to do and what you should avoid,” advised Rohan Arinaya.
He explained that the lockdown had taught most people that there were several spends we could do without, and life could be led differently, “at least in the current situation”. “The more you save the better it is to weather the storm,” Rohan said.
It is important to be prudent and disciplined as cycles like these are part of life, Satheesh Krishnamurthy said.
“There was the Harshad Mehta Scam when I was in school; when I was at business School, the Asian financial crisis happened; 9/11 occurred when I passed out; and we saw the global financial crisis in 2008. These cycles are a part of an individual’s life. You need to be prudent and disciplined. The right course of action for each individual will be different, but it is best to take a planned approach instead of reacting,” Satheesh added.
He said it was best to plan for cash liquidity for 12 months in advance.
Avoid taking loans, clear EMIs
If your inflows are uncertain, it is best to try and not only control outflows but also not add to them. Loans may end up being an additional burden if income isn’t stable.
Gaurav Dua advises people to keep clearing their EMIs. “While a moratorium option has been given, it isn’t a waive-off; the amount will be added to your principal, increasing liability. If you have the liquidity, continue paying your EMIs, ” Gaurav said.
Credit cards are the most expensive form of credit, and you should avoid revolving these. Pay the total due amount if you have the means and funds to do so.
Invest across asset classes
Look at different forms and means of investing, including fixed deposits. “Many would advise against fixed deposits as they are a low-return asset, but in times like these, they are a mode of stable and strong investment,” Satheesh advised.
The experts added nobody could time markets perfectly, so it would be prudent to focus on a gradual push.
Gaurav said investing in term plans did not serve the purpose, but added that the logical way would be to invest across different classes and ensure that one had liquid funds.
“Increase the quantum of SIPs as most stocks are available at a reasonable price and the returns will be good in a few years; focus on a gradual path,” he added.
Simple investment plans like an SIP will make compounding work in times like these. “Especially when you are young, make time your ally and wait for the right opportunity,” Satheesh said.
Approach a financial expert
If you are a first-time investor, it is best to seek advice from an expert. Find an intelligent empathetic financial advisor, one who understands the needs of different individuals and doesn’t stick to a cookie-cutter model.
“Look for integrity, intellect, and innovation. Someone who can give you a plan that suits your needs and requirements, and sticks it out with you as a financial partner,” Satheesh said.
Give your investments time
In times like these, most people tend to have a knee-jerk reaction: they either experiment too much or withdraw completely.
Rohan said investments needed time. “If you have an expert, understand from them why different stocks are pitted over others and what makes your investments shine,” he said. Avoid comparing your investments with others as their needs, value, and horizon will be different from yours.
There will be slippages, and the year won’t be easy. But the financial experts said 2021 would be a “year of recovery”, and India still had “a long and great equity story ahead”.