Personal Finance

Managing money in the time of coronavirus

Rajalakshmi Nirmal | Updated on March 29, 2020

As value of investments decrease and prices of essentials increase, managing personal finance assumes great significance. Here are a few tips

You have plenty of reasons at present to worry — an uncertain job market, plunging investments, rising inflation and now Covid-19. But if you plan your life and investments and spendings well, you can relax.

Professional networking on LinkedIn and other such platforms and keeping your updated resume ready is important, and practising financial prudence is essential.

Here are some tips:

Keep some cash handy

Some employers may cut jobs as businesses face slowdown . It is inevitable. So, you should be prepared to meet your household expenses, at least for the next three months, in the unfortunate case of you being laid off.

You need not withdraw cash that you would need for the next three months and tuck it in your wallet.

Keep one month’s cash needs at any point of time. And the rest in your savings account. Do not park this emergency fund in liquid funds of MF schemes.

Liquid funds became popular in 2017 as they gave higher returns vis-a-vis savings accounts. But this is not the case any more.

These funds havewitnessed extreme volatility in recent times with the Covid-19 contagion gripping the debt market, and investors withdrawing their money.

Make a list of all your investments — in stocks, MFs, gold and real estate, and give it a thought as to which can be pulled out first when the need arises.

You should also look seriously at your expenses and avoid splurging; even after the current lock-down ends.

Economic conditions are likely to remain difficult for a while. Reduce your non-essential expenditure and use your credit card sensibly.

You may want to let go of your premium internet/cable packages, cut down on eating out and avoid splurging on branded clothes/accessories.

Get your insurance in order

If you do not have one already, buy a life insurance cover. You may wonder whether this is necessary when you are trying to cut back on even regular expenses.

But given the tough economic conditions and the virus scare, for peace of mind, you should first ensure the financial security of the family.

So, before anything else, buy life insurance — even if this means stopping your SIP for a month and using that money to pay premium. You can look at HDFC Life, ICICI Prudential, Max Life, SBI Life, TATA AIA Life or LIC for a policy.

Santosh Agarwal, Chief Business Officer, Life Insurance,, indicates that insurance premiums are set to rise by 15-30 per cent from April, and this is probably the best time for customers to buy life insurance.

“Re-insurers are revising their cost price due to stress in business. When reinsurance rates are raised for insurance companies, premiums are bound to go up for term plans. The increase in pricing may also lead to re-visiting of underwriting norms. So, buying life insurance right away, if you need one, will be a prudent thing to do.”

For a male of 35 years, life insurance cover for ₹1 crore till 70 years of age will come for a premium of ₹12,000-16,000 per annum. For a smoker, the premium will be ₹17,000-25,000.

You should also take a family floater health insurance policy to ride out financial exigencies from hospitalisation. Some policies to consider are Royal Sundaram’s Lifeline Supreme, Religare Health’s Care and Aditya Birla Health Insurance’s Activ Assure (Diamond Plan). A cover for ₹5-lakh sum insured will be essential; this will come at a premium of ₹ 7,000-10,000 per annum.

Say no to fresh EMIs

At a time when the economy is volatile and you foresee limited financial resources in future, do not commit yourself to fresh EMIs — be it a home loan (especially if it’s a second property) or others. Also, try to repay high-interest debt, including personal loan or credit-card dues. You can even consider using some of your investments towards paying off debt.

For example, let us assume that your investments earn 7-8 per cent, but you pay 24 per cent interest or more on your credit card loan. In such a situation, it is wise to redeem the investment and settle the debt.

Also, do keep a tab on EMI payment dates. Consider reducing your EMI amount by agreeing to increase the loan period. But mind you, by doing this at the end of the loan tenure, you would have coughed up more money on interest compared with a short-tenure loan.

Do not stop investments

The market crash this time has been very sudden and would have come as a shock to you.

But do not panic and withdraw all your investments, unless you are only 1-2 years away from retirement.

Investing in equity is one of the effective ways of building wealth for the long term.

In times such as the present, when markets are volatile, SIPs work really well: they help you accumulate more units of a fund, and when market recovers, you would have made a killing.

If you prefer direct equity investing, it is a better idea to buy bluechips that have been beaten down in the market correction. These stocks will revive faster than smaller stocks.

Also, there is no need to alter your asset allocation based on such phases. Stick to your allocation between equity, debt, gold and other alternativee assets, based on your age and risk profile.

While being invested, what you can do to safeguard your portfolio is switching to hybrid funds from equity funds — this can protect the value of your portfolio during market correction.

Hybrid funds invest both in equity and debt — you can choose a category of hybrid fund based on your risk appetite. While some go up to 100 per cent on equity, others may keep it lower.

If faced with a cash crunch, do not lay hands on your long- term equity investments.

First, see if you can redeem the FDs that are maturing in the next one year (the penalty will not be much) or investments lying in liquid MFs.

Published on March 29, 2020

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