The Covid catastrophe seems to be far from over – the so-called second wave across the country is creating havoc. The surge in Covid cases has led to the health systems reach saturation level. The fear of a lockdown and its impact on business activities has been visible in the recent plummeting of the stock market. 

And with the recent surge, the rebound in economy seems delayed and slow. However, like last year and always, it would be best for the investors to not panic and sell off their equity portfolios. A longer-term investment horizon is required to reach the desired returns. On the contrary, it is an excellent time to invest in equity on the days of significant fall. Like 2020, equities, fundamentally, will bounce back.

Our economy has shown signs of resilience always. We will reminisce about 2020 as the year coronavirus took over with devastating effect on human lives. Covid-19 has triggered a change in our way of life, augmented many existing trends and kick-started new ones.

This backdrop of Covid further heightens the requirement of prudent financial planning. Portfolio should be structured on the basis of risk profile, aspirations, cash flows etc of the family. A good financial planning helps with optimal mix of Equity, Debt, Real Estate and Alternate investments – a perfect balance of safety, liquidity and return. 

The need and importance of insurance for risk management is high. Sadly, in India, insurance is still sold as a financial product rather than being bought by people to protect against uncertainties. The Economic Survey 2020-21 shows that insurance penetration (premium as a percentage of GDP) continues to be at a dismal level of 3.76 per cent in 2019, a marginal increase from 2.71 per cent in 2001. Insurance becomes a priority only when one experiences the uncertainties in life first hand, up and close, which is very common in the present times. Be it simple term insurance or medical insurance; it will be wise to safeguard aspects of health and life.

A perfect hedge for an emergency, approximately equal to 12 to 24 months of expenses – should be invested in fixed income products which has high liquidity. With economy expected to recover this year, demand for goods will go up, this will lead to higher inflation and interest rates. In rising interest rate scenario, its better to stay invested in Debt funds which have maturity of upto 1-2 years. Avoid Fixed Deposit/ Bonds/ Debt Funds with a longer tenor. The amount can be reinvested at a higher rate as the interest rate goes up in next 6 months to 18 months. 

It has become challenging for the investors to navigate through this bygone year, with certain tendencies creeping in the investor behaviour. It’s essential to sanitise the portfolio based on the risk appetite and investment horizon. Equity exposure should be as per asset allocation policy. Revisit the asset allocation of portfolio and make changes as per variances. Have diversified equity exposure across International, Large Cap, Mid Cap and Small Caps. Move away from the higher risk debt funds and move towards more stable debt funds with higher-rated papers.

Being emotionally strong, with Covid all around us, is most important. At times, not doing anything and staying put also is an intelligent thing to do. We do not have to react to every volatility of the market at all times. Let the world and situations around us subside; investments are there to grow – sometimes at a rapid pace and at times a bit tepid. Avoid herd behaviour, bring rationality in most of the decisions taken in such scenarios. You are a different investor from others in the market. The investment horizon, return expectation, risk appetite, etc.  is all different for each investor.

So my dear investors, in the current uncertain times for the world, it is critical to maintain investment hygiene for sustenance in the long run. Clean and sanitise your portfolios, keep your distance from high-risk investments and if you are prone to herd biases, quarantine yourself from the markets on days of high volatility! When it comes to investment decisions,  the bygone year has brought to the forefront the need for financial portfolios that can help navigate the tough times with ease.

Stay Safe – both you and your monies! 

 
Dr. Tarunika Jain Agarwal Ph.D.