“Be prepared to invest in a down market and to “get out” in a soaring market”. –Warren Buffet
Novel Coronavirus commonly known today as Covid-19 is one of the worst pandemic which has affected every part of the globe. The virus has disrupted the entire economy and is still continuing to effect many of the sectors. In such a situation one of the challenges which many of us are facing is market volatility. The stock market was battered due to the pandemic. Many of the investors are worried about their present investment and rethink whether to invest during Covid 19 crisis or not.
In a such situation when Investments take a toll, many of us are not willing to lose any additional amount as it could drain out the entire savings. And when there is unemployment rising, banks defaulting and economy is not showing any positive signs of bouncing back, it is but obvious that one would stay silent and happy without making any investment.
But as Warren Buffet says one should not get scared and stop investment. In fact he believes that when investments are made in a down market then one can get amazing profits when the market rises. Well, as we all know the biggest risk in life is taking no risk!
So How to Invest during Covid 19 Crisis?
As we know that market is volatile and the time is uncertain, we should remember the core investment strategies. So it is advisable to gauge risk appetite and take advantage of the opportunity available.
Few strategies include
- Stay Informed
Investment is something which is not an easy task. You cannot just walk to a shop and buy investment products and pay for it. It is something which needs observation, understanding, and experience and then arrive at a conclusion to get a good amount of returns. So here the main key to investment is research, before jumping collect as much information as possible, have a look at the past performance of the assets. Do a comparative analysis and choose the ones that suits you the best.
- Buy and Hold
Sometimes it is better to invest and do nothing in the stock market. It means invest in the stock and leave it as it is for a longer period until there is an emergency. Now in such a situation whatever the market position be one should not bother and keep oneself invested. But this type of risk cannot be taken always.
That is why we should do a complete research before investing and then decide whether to stay invested for longer period or better not to invest in the stock.
- Contribute Gradually
Invest during Covid 19 crisis, a certain fixed sum of money into the assets of your choice for the long term. You need to allocate this money towards investing regardless of the market performance. It allows you to invest in more units when the prices are low and fewer units when the price is high. Either way, when you start dedicating a certain sum of money towards investments, its value is more likely to appreciate in the long run.
- Explore Alternative Investments
Alternative Investments helps to diversify the risk. It is called Hedging of Risk. Instead of investing your entire amount in one basket and breaking all the eggs it is better to invest in other options which will reduce some risk.
- Keep an emergency corpus handy
Make it a practice to put a chunk of your monthly salary in an emergency fund. Once you have paid pending bills and EMIs and have enough money to sustain you throughout the month, the leftover money should be used wisely.
Now that we have discussed Strategies to Invest during Covid -19 crisis, Let us understand why we should do investment during Pandemic?
Low economic activity:
Due to Covid-19 Impacts and Challenges bought in by the Pandemic the economic activity of the country has drove the markets down. While it may sound like bad news, a dip in the market means a fall in prices. When you invest when the market is down, there are more chances of profitability in the future.
Booming alternative investments:
Alternative assets are those assets that are unaffected by uncertainties. Investing in alternative assets during Covid 19 crisis could help you protect your money from eroding regardless of how the money market performs. The pandemic has opened doors to many alternative avenues of investment, such as cryptocurrencies. Despite distressing times, this new asset class witnessed a 500% growth in value and is still booming.
Few Options to Invest during Covid 19 Crisis
Bharat bond fund of fund:
This option has AAA-rated PSU bonds as the underlying investment, making it quite safe as an investment option. It tracks the Nifty Bharat Bond Index and is a passive fund with very low charges. There are three-year and ten-year options. The ten-year option will certainly offer long-term capital gains benefit with indexation on principal.
It is quite attractive, as the post-tax returns are expected to be better than any other debt investment option. It is also liquid and can be exited anytime.
The negatives are that you should get into this option only if you have a seven-year horizon or more. This ten-year product may also be subject to much higher volatility on account of interest rates, in the short term, though it will even out over time. This option does not provide any regular income.
So this one of the option invest during covid 19 crisis.
Government securities funds:
Government securities are debt instruments sold to fund an independent government’s operations. Government securities work in a similar fashion to corporate bonds. Corporate bonds help firms afford equipment, operational expenses and other expenses that may help them grow or boost profits.
With government securities, the funds are often used for military projects, special infrastructure construction and necessary operating costs. By using this form of funding, governments can avoid increasing taxes or issuing spending cuts.
Banking & PSU debt funds:
Banking and PSU funds are debt funds that lend only to banks and public sector companies. The high quality of borrowers allows these loans mean the risk of default is very less. However, they do get affected if interest rates in the economy go up.
Other debt MFs:
There are various categories of debt MFs such as corporate bond, short-term and medium to long term funds that also have high-quality papers as on date. These are good for now. These are any day safer as compared to corporate FDs/NCDs/Bonds, as a debt MF holds multiple papers.
Even if one defaults, it has limited impact as it is a small portion of the portfolio. The other attractions in this option are excellent liquidity, shorter tenures, tax efficiency, diversification of risk due to a basket of underlying securities and a professional fund manager being present. If the situation in the economy due to Covid 19 worsens, one may have to shift to the other three avenues discussed earlier.
PSU bonds of both tax-free and taxable variety are available in the secondary markets. They are safe. They also provide regular returns, mostly on a yearly basis. Liquidity is poor and money will get locked up; any liquidation in between will have to be at a good discount.
Hence, you should invest in these instruments only if you are clear about holding them till maturity. On a post-tax basis, they can offer 5.5 per cent or less as of now. They are still better than returns from FDs or even high-quality corporate debt papers today.
Bank FDs –
This is an instrument that everyone is familiar with. Invested in a PSU bank, it is safe. Liquidity is good but returns are low. Regular returns can be made. Interest income is fully taxable.
Small savings schemes –Small saving schemes from post office such as term deposits, NSC and KVP are safe instruments. However, their post-tax returns are low, have somewhat longer tenures, liquidity is poor and interest is fully taxable. NSC and KVP do not offer regular income.
The RBI has come up with 7.75 per cent taxable bonds, which are very good in today’s situation. Interest is paid half-yearly, though a cumulative option is available. This has a seven-year tenure and hence is suitable for those who can keep the money invested for this period. The choice of instrument must be based on various parameters such as safety, liquidity, tenure, regular returns and tax efficiency.
We humans are amidst uncertain times. In such adverse conditions, it would be prudent to keep aside some amounts aside as emergency funds. Only savings might get us through the pandemic but investments will help us pull through the uncertainty. One should make the moves after evaluating the evolving situation. After all safety of one’s investment is what is of paramount importance, in a highly uncertain environment.