Nightmare for the non-digital

The other day, I saw a Twitter poll that asked, "Who is driving your company's shift to digital?" and the options were 1. CEO, 2. CTO, 3. COVID-19. No marks for answering correctly. By now it's conventional wisdom that the pandemic will drive a permanent shift to digital interaction and work.

However, that's the future and it's hard to think about the future for too long nowadays. Right now, there's a special case of savers and investors who were so far dealing with financial services physically, but have now been driven to deal with them digitally practically overnight. Last week, I received some emails from people - all senior citizens - who were worried about the impact of the three-week shutdown on their ability to redeem their mutual fund investments. These people are used to filling up a redemption form and handing it to the distributor's employee or at the local office of either the mutual fund company or a registrar like CAMS.

These options are closed now, except for those who have dealt through their banks. Moreover, given the heightened risk for senior citizens from the virus, it makes no sense for them to go out and deal with their investments physically at all. As it happens, the mutual fund industry and the registrars have put together a system for helping these people redeem their funds without physical interaction, provided they have a mobile number registered with the mutual fund. Since mutual fund redemptions can only be made by direct transfer into the same bank accounts from which the investment was made, the method should be safe.

I don't know what the data for the month will show in terms of redemptions, but it's highly encouraging that despite a huge global crisis and tremendous volatility in the underlying markets, the entire system is functioning and savers are able to access their money when they need to. In the early stages of the market crash in India, I heard a lot of people say online that the markets should be shut down because investors are losing too much money. The media fed into these fears by the routine alarmist headlines like XYZ lakh crore of investor wealth wiped out in minutes or hours or days or whatever.

The knee-jerk reaction to this was that markets should be shut down. If this were to happen, then no one would be able to get their money redeemed, whether from mutual funds or stocks and that would lead to real panic. You would not even know whether you have lost 10% or 99% of your investments. Such an action would be the worst possible blunder and thankfully, no one took it seriously. I think only those who have nothing to do with the markets and short-term punters of a certain kind were advocating this. The job of the financial markets is to provide value and liquidity, no matter what the circumstances.

Having said that, savers should be careful about trying to redeem large amounts. As I've written earlier, the markets' gyrations do not provide a lot of sensible indicators as to the medium and long-term economic impact of the pandemic. The huge up and down swings attest to that. There will be a huge short-term slowdown, that is beyond doubt. However, when things get a little clearer, we could well see what we may call a 'buying panic,' as we have on the tail-end of earlier crashes. While history does not repeat itself perfectly, patterns of the past tend to get repeated with some variation.

Anyhow, to get back to our initial topic, only those who have converted all their money dealing to digital are completely comfortable today in terms of carrying on their lives online. Clearly, once the dust has settled on this nightmare, no one will want to deal with old fashioned paper forms and cheques ever again.