How Should DIY Investors Go About Investing Amid COVID-19 Crisis?

Fear of mis-selling and ill-advice from sales intermediaries is also a reason why some prefer managing investment on their own. Moreover, managing DIY investments provides a cost advantage because you do not have to pay any fees to a third-party.

Investing under normal circumstances gives you confidence in the ability and knowledge of managing a portfolio on your own and you may be willing to assume higher risk. However, the unprecedented event of COVID-19 outbreak has caused the financial markets to be highly volatile and has added to the uncertainty of its future course.

Falling interest rates, volatile equity markets coupled with unpredictability of economic conditions can make it difficult to manage finances on your own. There are chances of it leading you to make decisions driven by emotions or biased/misled views which can prove to be detrimental in your journey towards wealth creation.

[Read: Make Mindful Choices of Mutual Fund investments in Current times]

It is important to ensure financial stability and stay on course towards your financial goals even in the face of a crisis.

The first step towards your financial well-being amid the crisis is to ensure that you have adequate insurance cover for life and health. Further, ascertain that your emergency corpus is sufficient to meet your living expenses for at least 6 to 12 months.

Coming to investments, one of the most effective ways to protect the downside is to limit your exposure to riskier investments if you do not have the appetite to absorb the risk.

For example, mid and small caps have high growth potential and can even outperform large caps over the long term. However, the risk involved is equally high, meaning it can be highly volatile in the short term. If you cannot handle short-term volatility, it would be better to avoid investing in riskier categories.

To do this, invest in a well-balanced portfolio across different asset classes viz. equity, debt, gold, etc. based on your risk appetite, financial goals, and investment horizon.

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When you invest in equities, choose a well-managed mutual fund over stocks because it is managed by experts with years of experience in equity and research. You can customise your mutual fund portfolio by choosing from the various categories and sub-categories based on your short, medium, or long-term requirement so that you can align your funds to different financial goals.

DIY investors often pick mutual funds based on recent performance. However, just going by the recent performance is not enough to judge the worthiness of the fund and the sustainability of its performance. Instead, apart from returns, you need to evaluate funds on the parameters such as:

• ✓Risk-reward ratios

• ✓Consistency of performance as compared to the benchmark index and category peers

• ✓Efficiency and quality of the fund house

• ✓Performance track record of the fund manager

• ✓The quality of portfolio

You could also consider investing in index funds if you are looking for returns on par with the market. While choosing an index fund, chose the one with low tracking error and low expense ratio.

The present equity market scenario has provided a valuable opportunity to invest at an attractive valuation and a decent margin of safety. So if you have investible surplus, it is a great time to invest in equities with a long term view. Given that the Indian equity markets are likely to be very volatile, it would make better sense to take the Systematic Investment Plan (SIP) route.

However, if you are approaching your financial goal, it would be advisable to gradually shift your investments to low-risk investment avenues.

Conservative investors should allocate a higher portion to low-risk investment avenues. Pick from debt mutual fund categories such as Banking and PSU Debt Fund, Liquid and/or Overnight Funds. Also, allocate some portion towards provident fund and bank deposits.

During times of crisis, investment in gold acts as a hedge and portfolio diversifier to preserve your wealth over a long period. Therefore, tactically allocate around 10-15% of your portfolio to gold, ideally through Gold ETFs or Gold savings fund.

Take time out to conduct a periodic review of your investment portfolio to ensure that it is on the right track to achieve your set financial objectives, especially when your personal or professional circumstances have undergone significant changes.

While reviewing, check the following points:

• Your fund is performing well across market phases

• Your investments are not too concentrated to a fund house, a respective category, subcategory

• The overall risk the portfolio is exposing you to

• Assess if the portfolio optimally diversified or over-diversified

• Are your investments well-aligned to your risk profile, investment objectives, financial goals, and time horizon before goals befall

If you feel overwhelmed with the task of managing portfolio on your own or if you are not well-informed about various investment avenues and the risk involved, it would be better to seek help of an unbiased financial planner/adviser.

If you wish to select worthy mutual fund schemes, I recommend you to subscribe to PersonalFN's unbiased premium research service, FundSelect.

Each fund recommended under FundSelect goes through our stringent process, where they are tested on both quantitative as well as qualitative parameters.

Every month, PersonalFN's FundSelect service will provide you with insightful and practical guidance on equity mutual funds and debt schemes - the ones to Buy, Hold, or Sell.If you are serious about investing in a rewarding mutual fund scheme, Subscribe now!

Warm Regards,
Divya Grover
Research Analyst

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