The unprecedented Covid 19 pandemic has disrupted the livelihood of many families across the globe causing uncertainties in their various aspects of lives. Employment, income, education, medical expenses have become their everyday challenges and it can be related that finance or “money” becomes a key requirement and a solution to these challenges. A prudent financial planning would lead to financial wellness of individuals and their dependents. As the famous adage states “May hay while the Sun shines”, every individual should plan their finances with respect to their savings and investments. There are a plethora of investment avenues and the right choice of investments would lead to financial wellness.
In Finance theory, a popular phrase is “Higher the risk, Higher the return”. The investment options available are umpteen such as Bank Deposits – Fixed and Recurring, Post office Savings, Provident Fund, Insurance, Corporate bonds, Gold and other commodities , Real estate, trading in equity market investments – Shares, Mutual funds, Exchange traded Funds, Derivatives, Digital currencies and so on. The investment options are listed in the order of lower risk to higher risk, where risk is termed as losses or the possibility of losing money. The return, in other words is the earnings from the investments or simply profits. The fixed and recurring interest rates varies from 3 % to 8% depending on the principal amount, tenure, bank which are in turn dependent of the RBI policy rates. The present interest rates from Corporate bonds range from 8 to 12 %. The returns of real estate and gold and other commodities are dependent on Market supply and demand and the Government policies. Insurance which can be broadly classified as Life Insurance and Term insurance which offer interest rates depending of the age, term period, the amount insured etc. Trading in equity markets are always seen as risky option, however the returns earned are huge which in turn depends on the right choice of equity asset and market timing. Suppose an investor had invested in the share of a pharmaceutical company during the stock market crash during March 2020 when lockdown was announced, he/she would have earned 100% return within 6 months. For instance, the share price of Dr.Reddy, a pharmaceutical company fell to INR.2688 on March 20, 2020 and rose to INR.5330 on September 18, 2020 and the return earned per share was 100% within 6 months. It must be noted the market timing on when to buy and sell the shares and choice of right asset are important.
Another adage popular in Finance is “Don’t put all your eggs in one basket” and hence it is suggested to diversify the different investment options to get optimum return with lesser risk. An individual’s economic life can be categorized as an adult who has begun his career, a spouse and parent with family commitments and a retired senior citizen. The savings and investments should be planned depending on the current stage of an individual’s life.
For an individual who has just begun his/her career, the investment portfolio can include Bank deposits for Safety, optimum Provident Fund for Tax benefits, Term Insurance scheme for Life coverage and Equity shares or Mutual funds for higher returns. The individual can begin with smaller investments in stock markets to learn the nuances of trading strategies and with minimal losses. Hence in case of losses, the individual can cover the losses in the beginning stage of his career and which can be squared up with his other investment decisions where the income is assured for a longer period of his lifetime. For an individual with family commitments, the investment portfolio can include housing, education and retirement and Medical insurance investments for ensuring safety for the family and future. In case of a retired individual, the investment option can be primarily Bank and Post Office deposits and Bonds which has lesser risk and lesser returns since safety of the savings or funds becomes more important. A person with minimum experience in stock market trading is suggested not to venture in the same during their retired stage of the life since the losses incurred if any, would drain their retired funds.
To sum up, “ May hay while the Sun shines”, “ Maximum Return with Minimum Risk” and “Don’t put all your eggs in one basket” can be followed to make wise investment decisions for achieving financial wellness.
“The views expressed are those of the author and does not reflect any particular policy of any official or agency “