personal finance

Your money goals impacted due to Covid? Here’s a roadmap to get you to financial safety


For Mumbai-based Shankar Mallapur, the steep market correction could not have come at a worse time. He is due to retire in barely five months, but his equity portfolio is down by almost 30%. “The market fall itself wasn’t a surprise, but the extent of cut in such a short span of time was a shock,” admits Mallapur, who is likely to begin his second innings with Rs 25-30 lakh shaved off his nest egg.

In Pune, Shaunak Potdar was planning to buy a dream house worth Rs 85 lakh in a posh location in the city. But due to the looming uncertainty and with no increment expected this year, he has downsized his plans to realistic levels. “The current work situation has dented my plans. A big-ticket loan will not be prudent at this time,” he says. He is now eyeing a cheaper option in the suburbs.

In the National Capital Region, aspiring student Mallika Singh is re-evaluating her choices. Singh was to commence her Master’s degree in specialised journalism at a top US university in June. However, the lockdown in the US has delayed the start of the course and the university is even considering shifting the initial delivery of the course content online. But Singh is wary of shelling out $ 98,000 (nearly Rs 74 lakh) for online education. “This is not what I had applied for. If it goes the online way, it will not allow for the same experience,” she rues.

Market crash close to goal can upset your plans

Both SIPs intially had a good run but corpus was mauled by the stock crash in the last year

SIP-I

SIP-II

The above illustration assumes Rs 10,000 monthly SIP in an equity multi-cap fund for mentioned time periods. First SIP final values are as on 1 Jan 2008 & 1 Jan 2009 respectively. For second SIP, final values are as on 20 Feb 2020 and 23 March 2020 respectively.

Shankar-Mallapur

In Pic:
Shankar Mallapur, 59, Mumbai

COVID Impact:
His retirement savings have taken a beating just five months before he is due to retire. His exposure to equity was almost 40% before the markets fell. The correction wiped out nearly Rs 25-30 lakh from his nest egg.

His Plan:
Wait for the markets to recover. Despite the loss, he feels some equity allocation is necessary to ensure that savings last a lifetime.


These are not isolated cases. There is a pandemic of broken dreams and disrupted plans. The stock market crash is not the only reason. Salary cuts, job losses and the changed circumstances are forcing Indians to rethink their financial goals. Weddings are being postponed, big purchases are on the back burner and retirements are being replanned.

Shaunak-Potdar

In Pic:
Shaunak Potdar, 34, Pune

COVID Impact:
Was looking to buy a property worth Rs 85 lakh in a prime location in the city with a home loan. But has changed plans following the uncertainty about salary increments.

His Plan:
Go for a smaller house in the suburbs worth Rs 60-65 lakh which won’t require a very large loan.

The worst hit are those with critical financial goals in the next 2-3 years. They have very little time left to bolster savings for the goal or replan their strategy. This week’s cover story looks at how one can find a way out of the ongoing storm. Whether you are approaching retirement, expecting to fund your child’s studies or on the verge of buying a house, we give you the roadmap to safety.

Mallika-Singh

In Pic:
Mallika Singh, 22, Noida

COVID Impact:
Was set to begin her Masters in Journalism in a US university in June. But lockdown has delayed the start of the course and it may now shift to online mode. She is not keen on paying $98,000 (Rs 74 lakh) for an online course.

Here Plan:
Request the university to defer her admission to the next academic year if normal delivery of courses not viable.


Retirement woes

The market’s vagaries can upset the rosy assumptions of returns, leaving the final outcome far less palatable. The recent crash is a wake-up call. The market mood can change abruptly and scupper your goal math if you are not protected adequately. Imagine a situation where you are building a Rs 3 crore kitty for your retirement 20 years away. You assume 12% CAGR from an equity-heavy portfolio, requiring you to salt away Rs 32,000 monthly to reach your destination. But a year prior to D-day, markets tank sharply and you are left staring at a portfolio CAGR of 9%—translating into a shortfall of more than Rs 1 crore.

Investors who are very close to retirement have limited time to rebuild their savings. The immediate concern would be to protect the nest egg and secure near-term liquidity needs. Rohit Shah, Founder & CEO, Getting You Rich, says, “Start building a liquid position in your portfolio to cover your needs in the initial few years after retirement.” This money can be kept in liquid funds or bank FDs. Some portion of the retirement kitty can be invested in the Senior Citizens’ Savings Scheme for guaranteed income.

Those who are about to retire should not necessarily withdraw into a corner, contend planners. A market correction should not be the end of the road. Retirement planning goes much beyond the specific date when one winds up working life. “Retirement planning doesn’t actually end upon retirement,” says Suresh Sadagopan, Founder, Ladder 7 Financial Advisories. “It is an ongoing exercise that extends for another 20-30 years. From the longer term perspective, the current scenario doesn’t really matter,” he insists.

This is why Mallapur is not giving up on his equity investments in haste. “I can wait 2-3 years for the market to recover,” he says. Having invested in equities for more than 20 years, Mallapur knows a thing or two about the nature of the beast. His experience tells him that markets tend to spring a surprise on the downside once in a while, but have the ability to bounce back.

At the same time, he feels this is not the time for him to get adventurous. “Given my situation, it does not make sense to invest more in equities now,” he asserts.

Ajay Vaidya, a merchant navy officer, agrees. Though he has another 5-6 years left to retire, he has barely 10% of his portfolio allocated to equities. He has been investing in stocks for more than 20 years but believes it is not prudent to invest too much in equities at this stage in life. Vaidya doesn’t want to depend on equities in his retirement, intending to primarily live off an income stream from a combination of bank deposits and rental income from property. He is right to exercise caution, but would do well to maintain some portion in equities to ensure that inflation doesn’t outlast savings.

Ajay-Vaidya

In Pic:
Ajay Vaidya, 59, Mumbai

COVID Impact:
He is due to retire in five years. Was not very badly hit by the market decline because equity exposure was less than 10%.

His Plan:
Stay clear of equities and live off interest income from bank FDs and rentals in retirement.

Ensuring a soft landing

If your goals are within touching distance, the immediate concern would be to ensure no further depletion. Many would be tempted to move the money into cash or fixed income options. This makes sense if the milestone is 3-12 months away. But if you are facing a shortfall and have a window of 18-24 months, there are better ways out. A one-time bullet withdrawal can be painful at a point when the stock market is down 20-25%. To avoid a hit to your corpus, withdraw gradually as you come closer to your milestone.

In fact, a calibrated exit not only helps avoid a sudden blow near to the milestone deadline, but also helps reap the benefit of any subsequent rebound. History shows that markets tend to recover quickly even from deep cuts. Arun Kumar, Head of Research at FundsIndia, points out, “In the past, from the point of 40% decline the markets have taken two years to recover to the previous peak level, on an average.” The shortest recovery took six months while the longest took more than three years (see graphic). To be sure, frontline indices have recovered nearly 22% from the trough on 23 March, though it would be premature to say that markets have bottomed out.

How soon will your portfolio recover?

In the past, markets took an average two years to reach previous peaks.

Portfolio-Recovery

If your goal due date falls within next 12-18 months, an STP (systematic transfer plan) or an SWP (systematic withdrawal plan) is the right approach. Start an SWP from your equity funds or an STP into a safe, liquid fund. This would allow the corpus to benefit from a rebound in stock prices over the next 12-18 months. “A graded exit will ensure you do not miss out on market recovery until the time you need to fund your goal,” asserts Amol Joshi, Founder, PlanRupee Investment Services. Reaching 80-90% of your desired target corpus is better than exiting completely with a 30-40% shortfall.

Realigning targets and outlays

For certain goals in close proximity, there is definitely a need to go back to the drawing board and redraw the contours of the plan, feel experts. Kalpesh Ashar, Founder, Full Circle Financial Planners and Advisors, reckons that some may have to look at redefining the target itself.

“Consider adjusting goal outlays with more realistic, achievable targets. There is no point compromising your existing lifestyle in pursuit of a rigid high-value goal,” he avers.

For instance, your child’s planned higher studies abroad will demand a hefty outlay. Children’s education is a non-negotiable goal for most parents, perhaps even more than their retirement. But it is possible you may not be able to amass the planned corpus in the current scenario. In this environment, the temptation may be to dip into your retirement corpus to fill the gap. This is not advisable. Instead, consider taking an education loan with the child as a co-borrower. “Taking an education loan for covering any likely shortfall in required corpus will give you some breathing space,” says Shah.

Besides, parents will have to seriously re-evaluate the prospects for their wards pursuing higher studies abroad. With most countries reeling under crippling slowdown and facing acute unemployment, it will not be easy for graduating foreign students to find a job. Like Singh, hundreds of students slated to start the coming academic year in foreign varsities face an uncertain future. Do consider if it will be safer for your child to wait for a year and then reapply for the next academic year, appeals Asher. “If unable to find a job within time after completing your degree, it can have huge bearing on your finances. It may be a good idea to delay it by a year and perhaps get some quality work experience under the belt in the meantime,” he suggests. Singh has now asked the institute to consider allowing deferment of admission by a year.

For non-negotiable goals that are within touching distance, you may have no choice but to liquidate certain investments not mapped to that goal. While liquidating investments, consider value in passive assets like insurance. Shah recommends that investors take a hard look at the utility and value locked up in multiple insurance policies. “Consider surrendering sub-optimal traditional life insurance plans that may fetch latent value. The surrender value can then be mapped to the goal and give more time for the equity portion of your portfolio to recover,” Shah says. However, the surrender value of a life insurance policy can be very low in the initial years, so consider the trade-off carefully before opting for it.

Also, if you have a high exposure to gold, consider booking some profits in this asset. Gold has appreciated significantly in the past two years. Dipping into EPF money should be the last resort, as it disrupts the compounding effect. But if push comes to shove, taking an advance against the EPF corpus is better than taking on a costly personal loan to fund near-term needs. You are allowed to make tax-free withdrawals of up to three months of salary or 75% of the balance from the EPF accounts, whichever is lower. For critical expenses like child’s education and marriage or home loan repayment, higher withdrawals are permitted.

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