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Personal Finance during COVID-19

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The pandemic has taken its toll on personal finance, but panicking will not help. Here are some ideas to help you

Mutual Funds

Choosing an ideal mutual fund is to go for tax saving funds that can also give you tax benefits. Balanced funds and Multicap funds are also a good bet – choose that have done a little better than other funds. Do not choose a fund on its recent performance. Look at funds where the fund manager has been around for 5 years or more.

Equity Markets

Nilesh Shah, MD, Kotak AMC Ltd. says, “stocks in IT, Pharma and FMCG is trading at a much higher valuation. As an investor you can make money from this. Asset allocation is a good way where you buy when the market is cheap and sell when prices are higher. However, as it is easier said than done, choose hybrid finds that can help do this for you.”

The Specifics

Repo rate is the rate at which the banks borrow from RBI and reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. Rating systems capture volatility and funds that perform badly are rated lower. It is a quantitative measure of risk adjusted return. Dhirendra Kumar, CEO, Value Research says, “this degree of widespread uncertainty has been unexpected but following basic tenets of finance will help. Firstly, you must save. Have an emergency fund that can help you tide over any health issues. Also ensure you have life insurance. Once this is set look at the money you have and set aside the money you need over the next couple years and money you don’t need in 5 years. It is important to look at this crisis as an opportunity to start thinking of financial planning. For money that you don’t need in 5 years, look at equity options but that depends on the kind of risk appetite you have. Markets can fluctuate wither way. If you are an investor who has not invested in equity ever, start with a balanced fund. If you have some experience with equity and can withstand risks, go for an equity fund via a SIP. Never speculate and try to spread it over a few years so you can benefit in the long run.” Even fund managers cannot time the market perfectly every time. Choosing the vehicle of investment is your prerogative. Aggressive hybrid funds, large cap funds, multi cap funds or equity funds the market has several choices but ask as many questions before you put your money. Investing in equity is investing in the Indian economy in the long run.”

Do Not Panic

Those who depend on income from investments are likely to see lower incomes with declining interest rates. Gaurav Mashruwala – Author & Financial Expert says, “in these times people tend to panic and not think rationally as things are volatile and dynamic. There is a need to stay focused and we need to understand that money will not give you financial freedom. There is a need to work on your emotions and look at the bigger picture by falling back on our scriptures. Physical health, social wealth/relationships, emotional wealth and financial wealth needs to be in harmony with each other so that you can make the most of what you have. The ability to live in the present is something that needs to be cultivated. While erosion in wealth and job loss can cause much stress and a worry of what the future holds, we still need to ensure that we focus on the moment. Prediction leads to panic and hence we need to prepare on an ongoing basis and keep renewing it so you can be prepared.” A contingency fund of 3-4 months of expenses is good if you have a steady income job. If you have a pay cut, look at your investments and see if you can liquidate some part of it that are probably not doing as well. K S Rao – Head – Investor Education & Distribution Development | Aditya Birla Sun Life AMC Ltd. says, “personal wealth has certainly taken a beaten in the COVID-19 time fear in the mind as far as money is concerned must be addressed by talking to your personal finance manager.”

Tips

  • Plan your exit 6 months in advance especially when you know you will need the money in the future.
  • Never invest a lumpsum, use a SIP.
  • Don’t opt for a moratorium if you can afford to pay EMIs.

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