Focus on a financial plan that works for you, don't worry about the ‘best plan' out there
The pandemic has brought along uncertainties and hence meeting short-term goals and having liquid funds at disposal has become the priority. Unnecessary expenses need to be moved to the backburner and spending needs to be focussed on the creation of assets that can help in times of distress. Purchasing or upgrading your health and life insurance plan is an absolute imperative!
Smart investing in a crisis can prove to be rewarding. The need is to focus on a financial plan that works for you and not to worry about the best plan out there. Consult a financial advisor to help you design the right-fit plan for you and your family.
Taking hands-off approach
There is enough evidence to support the theory that in the long run, customers who remained hands-off made the best returns. This methodology helped individuals to remain invested for a very long time and create considerable wealth through the power of compounding.
While a completely off-guard approach is not advocated, in uncertain times, you can avoid the ‘wrong’ decisions by killing the noise. Stay updated about the markets but do not succumb to speculative opportunities in uncertain times. You are more likely to do better this way.
If you invest systematically through Systematic Investment Plans (SIPs), then volatility is likely to affect your returns lesser. SIPs enable to take advantage of asset price volatility through Rupee Cost Averaging. This makes SIPs one of the most preferred investment options.
Invest in Small Finance Banks Fixed Deposits
Most small finance banks (these are scheduled commercial banks, so in the same league) offer 8-9 per cent p.a. interest on Fixed Deposits (FDs) for tenures of one to three years as compared to an average of 6-6.5 per cent p.a. offered by large public and private sector banks. The returns for senior citizens in FDs with small finance banks are even better (typically, 50 basis points higher) as compared to other available schemes. In Budget 2020, the finance minister also increased the insurance cover on bank deposits to Rs 5 Lakh. Good returns with a higher cover make FDs of small finance banks a compelling investment option.
Focus on Asset Allocation to reduce the risk
Asset allocation implies diversifying your investment over different asset classes with different levels of risks associated with it. Some assets like debt funds have lower risk profiles, while others like equity funds fall under higher risk categories. Debt funds will be far less impacted by a market downturn than equity funds. Low risk debt funds can continue to generate positive returns when equity funds are making losses. Portfolio stability will enable you to remain invested and in the long term when the market recovers and makes fresh highs, equity funds will create wealth for you.
It is important to stay informed about the various economic and regulatory reforms to analyse and create a balanced portfolio. Regulators continue to refine existing regulations in the wake of the changes in the environment. Regulatory trends tend to have a significant impact on banking and finance. It is imperative to stay informed of evolving trends in banking, capital markets, insurance, and investment landscape to stay on the top of the curve.
The market is always expensive, market volatility has always been here, covid is not new anymore and political uncertainty is nothing new. In every crisis, there is an opportunity. In every phase of the economic cycle, there is room for making a reasonable return on investment. A portion of your portfolio may be set aside to meet regular income needs over a five- to 10-year period. Remember to make a plan and stay the course!
The author is MD & CEO, Fincare Small Finance Bank
DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.