The COVID-19 pandemic is more than just an impact on the global healthcare system. With numerous lockdowns and the consequent impact on businesses, it has started showing its effect on the country’s economic set up too. As an example, the Indian startup ecosystem has taken the worst hit since there has been a sudden shift in consumer mindset. The outbreak is predicted to have a long-lasting impact on sectors including hospitality, real estate, banking, energy, etc. While many sectors like IT and healthcare/pharma outperformed in 2020, many others underperformed. With the second wave of the pandemic hitting hard in India this year, investors are looking for safe investment options.
For those who want to invest wisely amid the Covid-19 fuelled slowdown, here are 4 important tips to note.
Tips to invest wisely amid Covid 19
1.Keep an eye on your goal
Always invest as per your goals to gain maximum benefits. For example, if you are currently invested in equity mutual funds, short-term market slowdown should not worry you since these are long-term investments. If your goal is at least 3-5 years away, then you need not redeem your investment in equity mutual funds. Frequent portfolio churn can cause more harm than benefit long-term plans. An abrupt exit could put your financial goals at risk.
In case your financial goal is near or if you do not have a high-risk appetite, it is advisable to gradually shift your investment from equity mutual funds to less risky alternatives such as debt funds. Opt for schemes (both equity and debt) after careful consideration of various quantitative and qualitative parameters. Such switching too should be aligned with your goals such that the investment has the capability to generate sufficient returns for you to achieve your goals.
2.Spread your investments
Carefully weigh your risk appetite, financial goals, and investment horizon before you construct your portfolio of investments. Ensure that your investments are spread across various assets, such as equity, debt, gold, and cash. Statistics suggest that no two asset classes perform in the same direction always. For instance, if equities are falling, other asset classes like gold could surge in prices. Additionally, debt securities within the portfolio can provide stability and steady growth during volatile market conditions. Try and stick to your personalised asset allocation plan and rebalance if needed as per market conditions to gain maximum risk-adjusted returns.
Apart from spreading your investment across various asset classes, investing in different sub-categories and adopting different investment styles is also important. A well-diversified portfolio consisting of equity funds like Large-cap funds, Mid Cap Funds, Aggressive Hybrid Fund, etc. can benefit in the long run. Diversification of investments in various market capitalizations can help in availing benefits of stability combined with high growth potential.
Although few sub-categories such as Small-cap funds and Thematic/sectoral funds project high return potential, it is best to invest in these only if you have a high-risk appetite. Try to limit your investment in these to around 10-20% of your total assets. Adopting different investment styles, like growth and value-oriented investments, can also offer great benefits.
4.Don’t try to beat the market
During extreme market swings, investors tend to panic and take investment decisions in the hope of beating the market. However, it is nearly impossible, even for seasoned investors to accurately forecast the market movements. This is primarily because various factors like economic, political, social, etc, that tend to affect the stock market are very unpredictable. Also, markets could rise in case of overvaluation or continue to fall even due to huge corrections.
Therefore, instead of beating the market through your investment, go for the SIP investment in mutual funds. Regular investments via SIP allow you to automatically buy more units when the NAV is low and fewer units in case it is higher. This way you do not have to beat the market. Purchasing more units at lower prices ensures that you can fetch higher returns in the long run. There is also an attached benefit of low investment cost and compounding of wealth.
The Covid-19 pandemic gives us various financial management lessons that can either be ignored or adopted to maximize gains in the long run. Adapting and aligning your investment strategies using the above-mentioned tips can culminate into a disciplined investment approach. Investing wisely today will only benefit you in the future.
- Can I achieve my financial goal that is due next year in the current Covid-19 situation?
Immediately due financial goals may be affected in the ongoing Covid-19 situation. In such cases, it is better to use an emergency corpus instead of redeeming investment as per pre-decided timings.
- Should I redeem my mutual funds in the current economic slowdown?
If you are looking for better returns from mutual fund investments, it is ideal to stay invested for a longer term, especially in case of equity funds. However, if you require liquidity, it is better to redeem your investment and invest in fixed income funds for stable returns.
- How long will the Covid-19 related economic slowdown last?
Economic downturns are a result of any major global contingency situation like the ongoing Covid-19. It could have a long-term impact, however, investors who remain invested for long term will see a lower impact of the economic slowdown on their investment returns.
- Should I increase my equity exposure during the current economic slump?
Depending on your personal financial goals, risk-taking ability and overall investment strategy, you may increase your equity exposure. The ongoing economic slump has resulted in a drop in prices of many equity instruments. Buying at a lower price and staying invested for a longer duration could increase the possibility of better returns.
- Are mutual funds safe in the current economic slowdown?
Mutual funds come with different risk ratings. Investors can pick a mutual fund investment depending on their risk-taking ability and investment objective. Current economic slowdown may have impacted the returns generated by funds, however, it is ideal to measure a mutual fund performance from a long-term perspective.