5 Healthy financial practices post-COVID

New rules for the new world order
What’s the easiest, most certain way to achieve your financial goals even in uncertain times?
Healthy financial habits.

Any goal you want to achieve is reachable through a few key habits with a little bit of time. It’s really that simple. Here are a few of these practices that you can include in your financial habits.

1. Leverage the gig economy.
On-demand contract work and the gig economy was possible even before the pandemic. But the paradigm shift in corporate culture has caused several companies to transform almost overnight. Gig economy workers have the benefits of earning money on their terms. The flight to digital and remote models of working have opened up opportunities to

2. Review expenses and savings
Even if salary budgets have been slashed, the virus outbreak has influenced consumer expenses in every industry (think cuts in expenses like fuel, travel, entertainment, shopping, dining outdoors, etc). Spending behaviors are settling into a new normal with a shift to value and essentials. You may also try to further optimize your cash flows and treat the margins as impact savings.

3. Reprice or refinance your home loans
Interest rates have also taken a plunge over the last few months. If one has home loans, check your rates of interest, and approach your bank for lowered rates. It is an opportune time for homeowners to review monthly cash outlays and ease up financial strains. You may either refinance (i.e., take a loan with another bank with lower rates of interest) or reprice (switch to a more competitive loan plan with the same bank), depending on which works for you best.

4. Review your financial plan
You may use the time to also re-visit your financial plan. Take an inventory of all your assets and liabilities and check for optimal diversification. Re-evaluate your choices. See if you have financial plans that can balance out your risks and guarantee safer and more secure returns. Re-shuffle your investments. Consult a professional if it helps.

5. Review your insurance covers
COVID-19 is a wake-up call. Very low medical covers in the past have fallen woefully short considering the number of days one is likely to be hospitalized if tested positive and serious. Check for the family floater plan of Rs 10L/25L/50L. The good news is that incremental premium is much lower for these. Protection instruments like health and life insurances can leave your savings scot-free while retaining your family’s lifestyle and long-term financial goals without disruption.

As local and global communities re-orient themselves to the new norm at a time such as this, you can re-organize your finances. The proverbial rainy day is here, and if you’ve made it this far, you can secure the future for you and your family. Even amid a pandemic, you can identify the new rules of financial planning and optimize.

Market volatility with changes


What are the different ways to manage market volatility. There are three ways to reduce risk : firstly, you can reduce risk by diversification. As the saying goes, do not put all your eggs in one basket.

Market volatility with changes.

* The second way to reduce your risk is by increasing the tenure.
– Eg. If you looked at the sensex from inception and calculated the returns on a rolling basis, there was about 35% chance of losing money for a 1 year basis.
* However, if you increase the tenure, to 5 years, you would have lost only about 9% of the times.
* Finally, you can reduce risk by spreading out your investments. You can do this by systematic investing.
* So, if you logically put these two statistics together, if you invested in the systematic mode with a 3 year perspective, the chances of losing money is very very low.
* That is why we believe that disciplined investing in equities with a long term perspective is a recipe for great returns.

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Loan Against Mutual Funds

There are times in life when you just have to take loans- for a medical emergency, a marriage or a much-needed holiday. You would most likely avail a personal loan which charges high interest and struggle with EMI repayments. This is exactly what happened to Shankar, a 28 year old man, who took a personal loan to go on a holiday.

Shankar a young man had dreams. He lived in the southern part of India, in a town in Kerala. He was a teacher at a nearby school with a take home salary of Rs 20,000 a month and he wanted more from life. He badly wanted to holiday in the North East. So he availed a personal loan of Rs 2 Lakhs from his bank with a tenure of 3 years at an interest rate of 16% a year.

For those who don’t know, a personal loan is a No Reason Loan. Banks don’t ask reasons for availing the loan.  There’s no collateral. The problem is banks charge interest of 14-21% a year on a personal loan. You might not be able to afford the EMIs and fall in a loan trap.

This is exactly what happened to Shankar. After an enjoyable holiday, it was time to think of the personal loan EMIs. He had to pay nearly Rs 7,100 a month for the next 3 years. This didn’t seem a problem till a medical emergency ate up his savings. Shankar struggled with personal loan EMIs and today is in deep debt.

Ideally, one should not take a loan for your wants.  You could take it for your needs.  We suggest you invest towards your vacation and then take your vacation.  However, if you cannot avoid taking a loan, taking a loan using your mutual funds as security, is one option. Use an overdraft facility in your bank account. This will help if you need is only temporary.  There’s no need to redeem mutual fund units and you can continue with SIPs. During a financial emergency, don’t liquidate mutual funds. Just avail a loan against mutual funds.

You can avail a loan against equity mutual funds, debt funds or hybrid mutual funds by approaching a bank or an NBFC and pledging mutual fund units as collateral. The loan is sanctioned based on the Net Asset Value, NAV of the mutual fund units in the folio and the loan tenure. You get loan against mutual funds at an interest rate of just 10-11% a year and as its secured, interest rates are much lower than the commonly availed personal loan. If you have a good credit score and have been a customer at the bank for a really long time, negotiate for a lower interest rate.

If the mutual fund units are in demat form, several online portals are willing to sanction loans within minutes. If the units are in physical form, you might need a loan agreement with the bank. You have to understand lien on mutual funds before we go further. It’s a document that gives the bank the right to sell the mutual fund units. This comes in handy for the bank if you’re not able to repay the loan. The lien grants the bank ownership of the mutual fund units you own. Approach your mutual fund house and request for a lien on mutual fund units in the name of the bank for a lien transfer to the bank.

How to get loan against mutual funds? Simply log on to your internet banking account and select the equity or debt funds you want to hypothecate. Your application is redirected by banks to CAMS or Karvy which verify the mutual fund holdings. The registrar marks a lien against mutual fund units being pledged with a letter send to the bank and a copy marked to you to confirm the lien. The lien is marked against the mutual fund units, so this means you cannot redeem units, until the loan is repaid. You continue to enjoy dividends and other ownership benefits, but you can’t redeem the pledged units. Equity based funds can fetch a loan as high as 50% of the NAV, while for debt funds its 60-70%. Banks allow you to avail a maximum of Rs 20 Lakhs against equity mutual funds.

Don’t make the mistake of not repaying; or the bank will ask the mutual fund to redeem units and take the money. Banks have a list of mutual fund units against which they lend.

Shankar availed a personal loan at an interest of 16%; while you get a loan for just 11% against mutual funds. This is a sizeable savings in interest. Shankar should have invested in mutual funds via SIPs and then gone on holiday. Loan against mutual funds are great when stock markets fall. If you need money in a hurry, just pledge mutual fund units, instead of redeeming them at a loss.