We can't be sure of how things will pan out. Thus, be little wary of this situation and devise a plan that is independent of what happens to the environment, says Dhirendra Kumar
Given the prolonged pandemic and the fact that it may take another six months for vaccines to be mass-produced, is there any likelihood of liquidity challenges re-emerging? Is it advisable to park money in debt funds, given that the equity market is volatile?
- Paresh Mistry
We don't know how long this pandemic will last. It could be three months, six months, nine months or even longer. We can't be sure of how things will pan out. Thus, one should be little wary of this situation and should have a plan that is independent of what happens to the environment, as we have absolutely no control over the environment. Nevertheless, we have reasonable control over what happens to our money, especially when we need the money. The money that you don't need for the next five-10 years should be invested in equity funds, while the money that you require in the recent future, be it for your daily or monthly expenses or the money that you are likely to need in the next two-three years should be parked in fixed income. This is the money that you should always keep handy and is called your contingency or emergency funds. You are the best judge to estimate the corpus you should have as your emergency corpus. If you have a contingency plan ready, then it doesn't matter whether this pandemic lasts for another six months or a year.
With regard to whether all your investments should be invested in debt only, the answer is, no. In your long-term investments, about 10-30 per cent of your corpus should be invested in fixed income. This can be tweaked a bit but don't reduce this allocation into fixed income to a very low level. Also, don't try to time the market. Don't attempt to sell your equity investments and enter the fixed income when the market is high. There is a big probability that you may fail and it will be extremely disappointing. If you try to time the market and get it wrong, then it will scare you and you may then buy equity at high and sell at low. Thus, plan your expenses and allocate your savings to equity and fixed income accordingly.