The COVID-19 pandemic-induced insecurities have gripped many individuals, testing their financial decision-making and in a lot of cases, pushing many of them to make hasty decisions when it comes to money matters. An impulsive move related to finances may prove to be costlier in the long run and impact the monetary planning of individuals.
Here are some of the common mistakes that should be avoided:
According to Adhil Shetty, CEO, BankBazaar, many individuals may be pondering to switch investments from one instrument to another due to the ongoing COVID-19 pandemic. For example, they may want to liquidate the debt funds and park the money in bank deposits.
However, Shetty thinks that it’s important to understand that market downturns are cyclic and markets recover strongly in time.
He explains this with an example.
“Consider the HDFC Index Fund Nifty 50 Plan—Direct Plan. Assume Mr x started a SIP of Rs 10,000 on December 30, 2019. As of March 30, 2020, he would have invested Rs 40,000. Had he pulled out at that time, he would have lost roughly 25 percent of the money invested. On the contrary, had he continued investments, he would have made big gains. The NAV on April 1 was approx Rs 76 and it is approx Rs 146 today. So, had Mr X invested Rs 10,000 on March 30, that investment would be worth more than Rs 19,000 today,” Shetty explains.
Dipping into retirement kitty
Retirement kitties are built on the concept of compounding. So, Shetty warns against dipping into them.
“Withdrawing fund from retirement corpus means it would take considerably longer to build up the corpus,” Shetty tells.
Not paying insurance premiums
The COVID-19 crisis has tremendously heightened various uncertainties. Adequate life and health insurance coverage are one of the few effective ways to safeguard one’s family’s finances against adverse possibilities such as hospitalisation or death.
So, the lapse of insurance plans would put a family’s finances at great risk.
According to Shetty, one should prioritise insurance premium payments.
During times of crisis, investors may try to hedge losses, which is not right.
According to Harsh Jain, chief executive officer and chief operating officer at Groww, investors should instead look at diversifying the existing portfolio by investing in securities that are not correlated with the existing investments.
"This can reduce the overall portfolio risk and help earn better returns," he believes.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
(Edited by: By Ajay Vaishnav)