8 Frequently Asked Questions During Covid-19

8 frequently asked questions during covid-19

Why are markets declining? How long it will decline? What would happen to my invested money? You might be going through such questions in your mind due to the ongoing turmoil in the market. To see hard earned money losing its capital value, is very painful for everyone. It is a concern for both you and me as a Financial Advisor. However, in my 25 years of experience in the industry, I have seen more than a couple of such acute market turmoil. Nevertheless, in all such times I have seen that the market recovered more than it had fell, within 12 months span.

Here, I try to answer 8 questions, which I guess might be going through your mind, currently.

Why is my portfolio in red despite investing for the last 3 to 5 years?

Your investment is safe and you are facing just a notional loss. Have your confidence, by seeing how our market has reacted to such events in the past. Indian economy depends largely on domestic production. The impact of covid-19 will be limited, once things stabilize. Unlike other countries, India stands a better chance for swift recovery. IMF has predicted recently that India and China are the only country which will have positive GDP growth in 20-21. Rest all major economies will de-grow in that period. India also will surely benefit in years to come from the negative sentiments around the world on the "Made in China" factor. Stay put and in fact, put more money if possible to create more wealth from the current NAV, which presently is at 3 to 5 year low level.

How can I achieve my financial goal which is due next year in such a scenario?

Financial goals which are due in the near term will not be affected if your investments are in Liquid fund or fixed income funds (debt funds).

Should I redeem my mutual funds and exit completely?

No, don’t redeem if your fund is showing negative return. These are notional loss and not actual loss. Don’t make a mistake of converting the notional loss into an actual loss by redeeming now. If you are too scared and want to exit completely from equity mutual funds, wait for at least a year. By that time, the capital loss recovery is expected to happen. However, investors who don't want to wait for a year, exit your investments and reinvest in fixed income funds for couple of years to recover loss.

I am having a financial constraint, how can I stop SIPs?

If it is extremely difficult for you to continue your SIPs due to loss of job or business loss, I respect your decision and you may pause your SIPs for maximum upto three months. I believe things will stabilize in less than three months from now.

Currently, many AMCs have introduced a new feature on their website through which investors can pause their SIPs. Also, AMFI has requested AMCs who have not provided the facility to enable this on priority. However, it is advisable to request pause SIPs at least 10 days prior to the SIP date.

Should I take advantage of the loan moratorium?

I do not recommend opting for moratorium scheme introduced by RBI. Moratorium is just a temporary relief from RBI. Under this facility, if an investor defaults on his loan EMI, his credit score will remain intact. However, banks and finance companies can charge interest on the payment delayed due to moratorium scheme. Hence, I advise you not to stop EMIs. However, if you are financially not in a position to run your EMI and SIP both, you should temporarily pause you SIPs and at least pay your EMIs.

Should I put money in debt funds for short term contingency?

It is extremely important, to keep 6 months of monthly expenses amount as emergency fund. Emergency fund can be parked in savings bank account. However, it is advisable to keep this money instead in Liquid Fund with Mutual Fund companies, which are as safe as savings account, but can give double the return. Money can be withdrawn, partly or fully on any working day, without any charge and the amount is credited to your bank account on next working day.  

How long will this volatility last? 

This is perhaps the toughest question to answer. In a country like India where majority of the population prefers investing in bank deposits and other safe instruments, dealing with a volatile product like mutual fund might not be easy.

Volatility is inherent part of equity investments. However, the past return historically proves that equity funds can outperform other asset classes over a long term despite volatility. In fact volatility is what helps SIP to give a higher return.

Should I increase my equity exposure through lump sum?

Considering the heightened volatility in the market, I have been advising my clients to invest their money in a staggered way. No one knows if the market will go up from here or it can go down further. Hence, it is better to take SIP and STP route to invest in equity markets.

If you have further question in your mind, please feel free to call me anytime you wish. Will be happy to speak to you.

Regards

Sajid

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