How to secure your fiscal position when markets dip
CHENNAI: The coronavirus outbreak has taken a toll on the Indian and global markets. Even top stocks are now valued at a much lower price, and there have been circuit breaks in the recent past. Given that the virus could hit you and medical expenses could burn a hole in your pocket, how do you secure your financial position?
According to Gaurav Mashruwala, a certified financial planner, ensuring funds to pay EMI for the next couple of months should be among the top priorities for anyone now. Financial advisors also say this is the time to ensure that your emergency fund is in place. “These are times when you may need the emergency fund we usually recommend a person should have. An emergency or contingency fund is usually the fund set aside to meet expenses for three-to-six months. One should get that first,” said Hemant Rustogi, CEO, Wiseinvest Advisors.
Rustogi says that if one hasn’t set aside that fund, and if money is needed in the near-term, one should redeem those investments that are the least affected. These could be fixed deposits or liquid funds that are traded in stock markets.
Nasser Salim, managing partner at Flexi Capital, says that retail investors should assess if their asset allocation is based on their risk profiles. “In a depressed market, one must see how much is in equity and how much is in debt.”
Rustogi feels that since a number of good stocks are available at decent valuations, it could be a good time for those who want to enter the market. “Do not invest thinking that markets have just corrected. But yes, if it fits your goals, valuations are good. It is a good time to set long-term goals. If you do not need money in the near future, you could set these goals and invest in the equity market.”
Experts are also of the view that nobody should go for in for a distress sale of shares. They also advise people to go in for a Systematic Transfer Plan.But, should one cancel SIPs? Salim says unless there is a six-month lockdown or the situation does not get controlled in six months, people need not stop their SIPs. “There is no fundamental issue with companies and their balance sheets. So, there is no need to stop your SIPs. If this continues, there could only be structural issues. But for now, there is no need to panic,” he says.
Advisors say if you have surplus funds, government bonds are a good option given the volatility in the market.“Also, it is actually a good time to add to one’s SIPs. There are massive discounts available in the market. Investors should use this to their advantage. The market will bounce back just the way it is falling now,” said Kshitij Mahajan, a financial advisor. He said that beginners should enter through the mutual fund route rather than via direct equity.
Besides these, one should ensure that health insurance is in place, says Mashruwala. “While the Insurance Regulatory and Development Authority has notified that Covid-19 tests and treatment should be covered for, insurance firms might not cover it if the situation goes out of hand. So, one has to really provision for all those health expenses,” he says.
While gold is a good option in a volatile market, advisors say one should not go overboard. They feel that markets could rebound faster than gold if the virus situation is contained. Financial advisors are of the opinion that gold should comprise only 7-10 per cent of the entire portfolio.