Financial Lessons From The Pandemic

While the need for basic hygiene and social distancing is one big lesson that the global pandemic of the coronavirus has taught us, the drastic movements in the equity and other markets have also been tutorials of a kind that will help us chart out a sound personal finance plan for the future

The spread of the coronavirus globally will certainly leave a deep impact in the lives of individuals across the world. This will not only affect them physically in terms of a drastic change in lifestyle and behaviour but also financially. The financial impact can, in fact, be gauged by the loss to equity investors. Since the start of the year, the frontline equity indices have been down by 25.74 per cent. Not just that but even the mid-cap and small-cap indices have witnessed a similar fall. Such a steep downward slide has emboldened mutual fund investors, who are not pulling out money from their equities.

Rather, they are infusing more money in equity-dedicated mutual funds. This shows the immediate change in the mindset of investors. That said, to take advantage of this nose-dive in the market, people are scrapping their other investments such as bank fixed deposits or recurring deposits to invest in equity markets. Even whatever surplus money is available is now being diverted towards investment in equity. Nevertheless, while doing so, most investors are not taking a pause to think whether this kind of hasty investment in equities is making them compromise on their actual investment objectives.

Therefore, we suggest that you sit back a bit and give a thought to whether you need this money in the short or long term. If you don’t need the money for say five to seven years from now then go ahead and invest it inequities. But if you have some short-term financial objectives lined up, stay away from equity and consider money market funds and ultra-short duration funds for the same. Meanwhile, the pandemic has definitely taught us a few important personal finance lessons. Let us see what these are:

Value of Emergency Fund