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How to make your investment portfolio immune to COVID-19 volatility

Having an emergency fund, taking adequate health insurance and maintaining a suitable asset allocation plan are important

May 03, 2021 / 02:59 PM IST

The massive second wave of the Coronavirus infection continues to spread across the length and breadth of the country. While it is unfortunate that so many lives were lost, following COVID-19 protocols and getting vaccinated remains the best defence for us as of now. The coronavirus is also having a toll on the financial position of many. Therefore, it is better to stay prepared for any financial exigency in these times. For the self-employed, the COVID-19 led lockdowns and other restrictive conditions had an impact on their livelihood. Even salaried individuals saw major pay-cuts and even job losses in 2020, impacting the flow of regular income.

The atmosphere of fear regarding one's finances and lifestyle is all pervasive. You can conserve your resources by avoiding all unnecessary expenses. Restrict your online shopping to necessities such as groceries. As far as possible, do not take fresh loans. Also ensure that your mutual fund SIPs continue as stopping them will deprive you of growth and wealth-creation opportunities. As a salaried or a self-employed individual, one needs to ensure that the financial situation does not deteriorate during these times. Here are a few key points to help you keep your finances immune from the impact of COVID-19.

Maintain emergency cash

A sudden medical emergency or a job-loss may impact your finances unless you have emergency funds, which will help you to avoid dipping into existing investments and savings. It is important that you have an emergency fund that is equal to at least six months of household expenditure ready. You may park your savings in short-term mutual fund schemes or liquid funds to meet this requirement, as they have the potential to provide high tax-efficient returns and yet provide liquidity to funds.

Find a second source of income

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There have been pay cuts and job losses last year and any sudden loss of income could impact your long-term goals. It can also be better to keep the second source of income as a backup plan to tide over any temporary issue regarding your income stream. Such a second source of income can supplement your income when the situation stabilizes.

Also read: Policies with hospital room rent sub-limits can inflate your out-of-pocket expenses

Take adequate insurance cover

The need for adequate health insurance and life insurance has become more pronounced in these pandemic times. Medical inflation is rising, and with COVID-19 related hospitalization, the cost is runs to lakhs of rupees for a 14-day stay in a hospital. Depending on your city of residence and type of hospitals, get adequate coverage for self and family members. You may even buy Coronavirus health insurance plans that cover hospitalization cost arising due to COVID-19.

Ensure that you have an adequate health insurance policy to cover all dependent family members. Keeping in mind the outbreak of COVID-19, it is suggested that as a family you must have a medical insurance coverage of at least Rs 12-15 lakh.

To give protection to your loved ones, children, and dependents, you must ensure that you have a life insurance plan which gives you coverage of at least 15 times of your annual income. Term insurance plans are low-premium, high-cover plans and are a must if you have financial dependents.

Review your investment portfolio

Use this opportunity of lockdowns and a work-from-home environment to review your existing investment portfolio. Talk to your financial advisor/planner to get rid of mutual fund schemes that are not performing and for adding the right consistently performing schemes. For long-term investors, any dips in the market can be used as an opportunity to deploy more funds. Also, look at the sectors and industries that are expected to do well in the post-pandemic world.

Also read | COVID-19: Money lessons for the second wave from the first

Follow asset allocation

It may also be the time to re-look at your asset allocation and decide the future course of action. Ideally, based on your risk profile and years to goals, your savings should be diversified across equity, debt and gold. For long term goals, equities remain the best asset class with a high potential to beat inflation over the long term. Your asset-allocation should not change as per the expectation of returns from various assets. Rather, your asset allocation should be based on your investment objective, risk appetite and the years left to achieve the financial goals. However, based on the actual performance, you may have to re-balance your portfolio to stick to the original asset-allocation plan to meet your long term goals.
Anil Chopra is Group Director - Financial Wellbeing, Bajaj Capital
first published: May 3, 2021 11:59 am

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