Covid, lockdown, recession… What should mutual fund investors do?

Many mutual fund investors are worried about the impact of coronavirus pandemic on the economy. They are worried about the extended lockdown would have on businesses and livelihood. All the talk of an imminent recession is also making them nervous. They have been asking what can investors do in such a situtaion.

IV Subramaniam, Managing Director, CEO and CIO of Quantum Advisors, responds to the question:

We have already seen the domino effect of COVID– 19 jerking economies around the world in the past two months. Given the sudden pause – probably the biggest pause ever in the businesses – this slowdown has had the biggest impact on economies. So, we might have some difficult quarters ahead of us. With a hit on GDP growth, jobs/unemployment the consumption pattern which is already ruptured might further take a hit.

Our assumption is the GDP growth this year is likely to be flat or negative and probably do a 4% growth next year. These assumptions are based on a 60-day lockdown and migrant laborers coming back to work. These numbers will undergo some change as a stimulus package has just been announced by the government.

As a disciplined investor, what is expected from you is that while you stick to your long-term goals, you also build a contingency fund. In a quest to achieve all their financial goals, many times I have come across investors who won’t anticipate the need to have a contingency plan just until they need it.

Park your money, ideally your monthly expenses for around 6 months to a year in a Liquid fund. Job loss or no job loss, pay cut or no pay cut, everyone has to plan for emergencies.

Remember, the first step towards prudent financial planning is to get yourself a term insurance if you are an earning member of your family. The second step is to save for contingencies. Then follows investing for your long-term goals. If you do this, trust me, come recession, come what may… you will have nothing to worry.


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