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Investing in the times of Corona

Am I doing OK?

Find out how you’re doing in the current financial scenario.

All your questions answered

The only real reason to withdraw from any asset class is when your objective has been met. In the case of equity mutual funds, the drop in NAVs due to a market crash is a temporary thing, even if it means waiting for months or a year. As the market recovers, the value of your investment is likely to recover too. By exiting now you are converting a temporary loss into a permanent one. Even if it is a bad fund you should ideally exit, do so when the market recovers and you get a better value for your investments. Finally, you can never be sure about the exact timing of the market recovery so you can never be sure when is the right time to re-enter the market. Focus on your asset allocation and invest accordingly.

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It depends. If your asset allocation is good, you have a good emergency fund capable of seeing you through at least six months of no income in a worst-case scenario, and preferably, you don’t see an impact on your job or sources of earning then the question can be asked in earnest. If you are a believer in India’s growth story, despite this pandemic, then this is a time to continue investing if you have the income to support investments. Those of you who stay invested now will reap the benefits in the future.

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History tells us that markets may take years, but they do recover. Our analysis tells us that whenever markets fall more than 20% in a three month period, it has usually been followed by a sharp rise. Only twice has the wait for positive returns been longer than a year. Equity is volatile, no doubt about that. This though is in the short term. If you have selected well-diversified equity funds and your asset allocation is aligned with your needs, you needn’t worry. Equity has had a consistent history of beating inflation over the long run which is about 7-10 years. If you can’t afford to wait that long then equity is perhaps not the asset class for you. But do note that it is the only one that has the chance of beating inflation consistently.

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The fall in the value of your mutual fund units due to a market crash enables you to add more units for the same amount of investment when you continue your SIP. In this way, you have more to gain when the recovery begins as you have added units at a faster pace. What this means is that if you stop SIPs now, unless you are facing a crash crunch due to a job loss or pay cut, you are skipping on the recovery. If you are invested in a good equity fund with a consistent history, then continuing your SIPs is much more advantageous. If for some reason you don’t have the finances now, you can pause your SIPs to come back when your income is back on track. Most importantly, do not dip into your equity investments and convert temporary losses into permanent ones.

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In times of uncertainty, an emergency fund is your first fortification. If you haven’t properly allocated some liquid investment as an emergency fund which is the equivalent of at least four months’ paycheque then combine your existing short-term debt funds, FDs and liquid funds. Think of the current crisis and market situation as a hard lesson in the value of investing according to your goals and ensuring an asset allocation based on that and your financial situation. The money you invest for the long term should ideally not be needed in, at least, 5 years. Your short-term investments aka your fixed-income based instruments should generally be sufficient to fulfil all your planned short term goals. The time frame for these should be up to 3-5 years. There is also a chance that you might have to increase your savings if growth assumptions change going forward. Keeping your SIPs going for now makes more sense as this will help you even more than simply staying put and not withdrawing unnecessarily.

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Rs. 10.5L has been donated so far to the CM’s Relief Fund from the Scripbox family.

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Hey Scripbox User,

This is how you are doing.

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COVID 19 cases are covered under health insurance, as per the latest IRDAI notice.

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Ideally, your savings should be:

30 %

of your monthly income

Use the next few weeks to reduce your non-essential expenses and put them aside in your bank account or in liquid funds.

Have an ongoing EMI? With falling interest rates, you should look at re-financing this. If you have a floating rate, this should go down.

EMERGENCY FUND

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Ideally, your emergency fund should be:

4 X

of your monthly income

Since your monthly income is uncertain, you should explore alternate sources of cash.

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If your investment horizon is lesser than 5 years, you could explore moving them to Liquid or Overnight Funds.

"Stay Invested" is the investing equivalent of Social Distancing. It's difficult to follow through emotionally, given the market ups-and-downs, but there are multiple, time-tested theories, to suggest that this is the best mantra for you to follow.

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