Hiral Thanawala and Nikhil Walavalkar

We tend to overreact to news, both good and bad. With a 25 percent fall in equity markets so far this year, largely due to the COVID-19 pandemic, many of us worry about our investments. Often, we take hasty decisions when the best remedy may just be to sit quiet and do nothing. Of course, you may have to do a bit of adjustment and rebalancing here and there, but shouldn’t go overboard. Here are some mistakes that you should avoid.

Selling off equities

We try to sell our equity holdings based on instances of recent market crashes. For example, multi-cap funds, as a category, fell by 27 per cent on an average in the last one month, according to Valueresearch. You may perhaps want to sell these and shift to bond funds. “Availability of time on hand may make individuals watch their portfolios more often. Losses may lead you to take some decisions driven by emotions, which may not be good for your financial well-being,” says Vishal Dhawan, founder and chief financial planner of Mumbai based Plan Ahead Wealth Advisors.

Selling all stocks can cost you dear. “A shift from equity to bonds now ensures that you book your notional losses. With falling interest rates on fixed deposits, you will take much longer to recover the money you lost in equities,” says Parul Maheshwari, a certified financial planner. This is not the time to sell stocks or stop your systematic investment plans (SIPs) in equity funds.

Parul advises sticking to your asset allocation. Shift to fixed income from equities if you have a near term goal as per financial plan.

Going overboard on stocks

Some among us try to go overboard. After the recent fall in the stock markets, some investors may want to jump in. These are good times to buy equities, but it’s important to do it in a measured way, and not haphazardly. It’s the fear of missing out that drives this haste.

The economic impact of Covid-19 is yet not measurable and the global economic recovery may take longer. “Valuations are attractive – no doubt; but investing in, say, small cap equity mutual funds with all your money in one go should be avoided,” says Pankaj Mathpal, founder and CEO of Optima Money Managers.

Apart from ascertaining how much equity and debt you should have, looking at the sort of risks you are comfortable in taking, this is also a good time to take stock of your emergency corpus. “You should have money worth at least one year’s expenses parked in safe bank fixed deposits or debt funds where credit risk is minimal,” says Vijai Mantri, co-founder of JRL Money.

Opting for loan moratorium

The Reserve Bank of India allowed borrowers to opt for a three-month moratorium. It came as a big relief to those borrowers who were in a tight spot monetarily due to job loss or cashflow crunch.

However, if you have got your salary and you are in a position to pay the loan equated monthly instalments (EMI), do not opt for the moratorium. Opting for the moratorium has its costs.

Mrin Agarwal, financial educator and founder of Finsafe India says, “To get back to repayment, be on a stringent budget and cut down unnecessary expenses. Also, any surplus funds from business or bonus received from your employer should be used to pay off the loans.” You can even consider paying your EMIs by selling off non-performing investments from your portfolio.

Save for your financial goals, instead of going for loans just because they are available.

Tapping your retirement funds

To further ease your burden, the Finance Minister has allowed withdrawals from the Employees’ Provident Fund (EPF) to tide over liquidity issues.

As it is, you can withdraw from the EPF for various other reasons such as medical treatment, marriage, house purchase, education and home loan repayment. Now, you can also withdraw to tide over the cash crunch during the COVID-19 pandemic. “If you withdraw partly from the EPF right now, you are losing out on future compounding effect which ensures that you have a sizeable corpus in the hand at the time of retirement,” Agarwal warns.

It is better not to dip into your EPF balance if you have sufficient liquidity. Retirement funds are meant for your golden years to ensure you don’t end up being financially dependent on anyone.