Managing Money During Lockdown
In the purview of the COVID-19 pandemic outbreak, the world is currently facing several economic disruptions. However, the current lockdown situation brings the following seven positives with itself to help one set the financial management plans upright.
Spending Time with Family
While one may think that it is not one of the money management strategies, one must not forget, “investing in relations pays rich dividends.” Even when the Work-From-Home (WFH) environment may be keeping the individuals busy, the commute time saved may undoubtedly put to more significant benefit by spending more time with one’s family. Not only can one have fruitful conversations with spouse and children about the importance of savings, but one may also indulge and encourage the children to save.
Availing Moratorium on Bank Loans
Acknowledging the financial difficulties during the lockdown period, the Reserve Bank of India (RBI) has allowed the people to defer the repayment of loan EMIs on term loans and credit card dues falling due between 1 March 2020 to 31 May 2020. While several banks have chosen to allow such moratorium by default, some banks are allowing such moratorium only if the borrower requests for it.
Whoever is facing liquidity issues or loss of income due to the lockdown may avail the moratorium facility. However, one may note that the interest will continue to accrue during the moratorium period. Hence, the moratorium should be availed if there are genuine difficulties to service the loans during this period.
Systematic Investment Plans (SIPs) have continued to be one of the preferred ways for retail investors to invest in the markets. However, the ongoing market volatility, coupled with the expected impact on the regular cash flows and income, may push the investors to discontinue their SIPs. However, the investors must realise that continuing to invest during such times helps them to benefit from lower valuations and average out their cost of investments. Deciding to discontinue the SIPs during such times may derail the overall investment strategy.
Therefore, it is always advisable to continue SIP investments during such volatile times, if the cash flows permit. However, one may temporarily pause the SIP investments to cope up with reduced cash flows, instead of discontinuing the SIP altogether. Pausing a SIP causes such SIP to restart automatically after a specified period, thus allowing the investors to continue investing towards their financial goals.
It is advised that one must maintain an emergency fund corpus of at least six months’ expenses to save for financial contingencies. The importance of such a fund is getting realised during current times. One may consider dipping into such emergency fund during the lockdown times, instead of taking hard financial decisions to avail moratorium on loans or pausing the investments. Such emergency funds may be recouped through regular savings or windfall incomes like annual bonuses etc. However, even if one has not been maintaining emergency fund until now, one must plan to create a reserve fund in the future.
Reviewing the Portfolio
The lockdown may be used to review the portfolio. Such a review enables the investors to keep a tab on the portfolio performance and identify the underperforming schemes in their portfolio to replace them with potentially better schemes. Such clean-up of the investment portfolio allows the investors to stay on course of their financial plans.
Reviewing the Asset Allocation
It is often said, “one must not keep all the eggs in one basket.” The same works for investing strategies as well. It is advisable to the investors to maintain a diversified investment portfolio spread across different asset classes. Optimal asset allocation helps the investors to align the investment strategy with their time horizon and risk profile.
The lockdown times may be used by the investors to review the asset allocation strategy and measure its effectiveness against their risk appetite. Further, the portfolio may also be rebalanced to align back to the optimal asset allocation, which may have changed over the period due to the relative investment performance of different asset classes.
Collating Financial Information for Tax Purposes
While the financial year has just ended, one may utilise these times to assemble the financial information one may require for filing his/ her Income Tax Return. Such information may include downloading the account statements, credit card statements, interest certificates from net banking login, mutual fund statements, capital gain statements, demat account statements, etc. Further, one may also prepare a financial handbook during such a period, which may list down all the financial information in one place for easy reference in the future.
The fundamental investing principles continue to stay valid, even amidst such unprecedented times. One should not let the ongoing medical crisis impact his/ her wealth management plans. Stay home Stay safe.