I have received many questions over email and comments on what to do during this market fall. They have SUDDEN additional funds and looking at my guidance.
I am surprising daily with such messages. The reason is that why suddenly investors started to get ADDITIONAL surplus than their usual life and usual income (including usual expenses also).
My answers to such questions are as below.
I always used to say to my clients “You predict many things, you did the BEST FINANCIAL PLANNING. But if a day comes in your life where today’s survival is in question than the FUTURE, then the LIQUIDITY and EMERGENCY FUNDS are your OXYGEN”.
Yes, with the speed Coronavirus spreading across the globe, it is hard to predict ourselves that we are SAFE. Hence, concentrate on your health and fitness. Take care of your family.
Do remember that Coronavirus spreading like SPEED, not like VELOCITY. Hence, taking care of yourself is the utmost importance and then comes the money matters.
The kind of impact it is showing on the whole economy and across the world, never think that your profession or job is SAFE. If you think so, then you are the biggest fool.
To a certain extent, your employer may cushion you and pay you regular salary. If things go beyond their control, they may also through away their hands.
If you are ALIVE, then there is a value for your RETIREMENT GOAL. If you are not alive, then what is the use of your retirement goal? But I am not saying the same towards your dependents goals.
However, with the current changing scenario, you have to understand the severity in prioritizing your financial goals than living in a dream.
Considering the above such risk, if you are ignoring the LIQUIDITY and EMERGENCY FUND, then you are one of the biggest FOOL.
Many planners (including me) used to suggest you to keep around 6 months to 24 months of your monthly expenses (inclusive of EMIs) as an emergency fund.
But the way this epidemic taking shape, I think one needs to build emergency funds beyond this 6-24 month rule. Because we don’t know how much time the economy takes to revive. Hence, build your emergency fund as much as you can.
If you are investing monthly through SIP and did proper asset allocation, then continue your investment as usual. At the same time, continue your lump sum investment strategy also by staggering the equity entry into for around 6 months to a year.
Never jump and increase your lump sum deployment into equity just because the market fell. NONE on this EARTH aware of the depth of the fall. Stop following if someone who is PREDICTING.
START BUILDING YOUR EMERGENCY FUND AGGRESSIVELY THAN FOOLISHLY WITHDRAWING FROM IT AND ENTERING INTO EQUITY JUST BECAUSE MARKET IS DOWN.
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in this current scenario, considering market downfall...would you advice to continue investing in mutual fund .its been 2 years since i started my investment! At present my portfolio is in -10% loss!
Dear Surya,
Hard to say BLINDLY. It depends on your goal time horizon.
sir,I planned to invest for 7 years! 2 years down the lane, now market seems extremely volatile! can you post a bolg detailing exit strategy in mutual fund! I don't need the money for coming 5 years! should i continue investing?
Dear Surya,
If your goal is just 5 years away, then better to stay away from equity.
Hi Basavaray Tonagatti,
Thanks for giving such great information. It is very helpful for me.
Sir,
Is there chance of capital erosion in liquid funds, I thought at least your capital is safe,at most interest for the qtr or annual may reduce.
Especial Liquid funds like HDFC, L&T, SBI, ICICI thought safe to park you extra money. Pl clarify.
Dear Krishna,
The possibility of capital erosion is not there. But don't go by name. Instead, dig deep into the portfolio of these funds and then take your call.
Greetings Mr Basu,
As we talk about emergency fund, what is the best way and place to keep these funds.
Thank you for the information, its like an eyeopener.
best regards,
Dear Aditya,
There is no such hard rule. The only first priority while keeping an emergency fund is HOW FASTLY YOU CAN HAVE ACCESS. Hence, I usually suggest 1/3 in savings account, 1/3 in FD and another 1/3 in Liquid or Overnight Funds.
Basu,
Is liquid funds also go down in the current market condition. I have reason to worry, because kids School fee,Insurance premium amount are invested in the Liquid funds and also emergency funds.
Should i keep investing in liquid funds for recurring expenses or Should redeem the Liquid funds and move to SB account for time-being.
Dear Dev,
Yes, but slightly. I suggest checking the portfolio of Liquid Fund you are investing.Also, no need to panic. I suggest Quantum Liquid Fund or Parag Parikh Liquid Fund.
At present i have invested in Nippon India Liquid fund for my emergency and recurring expenses. Bit worried, whether this current market situation affects the fund value. I am not talking about returns, just to preserve the capital to meet the recurring expenses and emergency if any.
Dear Dev,
That is the reason, check your portfolio of the fund. As per my knowledge, better to move to Quantum or Parag Parikh.
Very well explained and clear many doubts. I was one of them who took advise to invest in falling market.
Dear Mudit,
Pleasure.