LoanRaja Blog- Personal Finance Guide

As time flies, a thought crosses my mind; how is an investor affected by financial crisis and who can he seek for investment tips? Now for instance would you expect a kiranewala to talk about financial crisis? Last week, I walked into a store to pick up a gift and handed over a Rs 500 note to the shopkeeper. The man didn’t have enough change to return to me. While that is nothing new in a city like Bangalore, what puzzled me was his reply. He cribbed that due to the slowdown in the US and financial crisis, consumers everywhere were going slow on their purchases and business was low during the last few weeks. Going further, we will talk on some investment tips to face this financial crisis.

If a shopkeeper who is not even an investor dealing with small value items is complaining of slow-down and financial crisis it is a clear indicator of the state of the economy. So how does one understand the outcome of financial crisis and how the investor is affected? The stock markets were the early birds to forewarn us by slipping into reverse gear since February and it has been tough for investors to find avenues for products which give good returns. On the other hand, the growing uncertainty at the work place for the salaried class, lack of business growth for the self-employed has forced everyone to change the investment strategies. At this hour, not only one needs to focus on liquidity but investors should also remember the fact that wealth creation is a continuous process and not something done only during boom times. Here, are some tips which can help you tide over the current financial crisis but also help you make a good opportunity of the environment.

Be Liquid during Financial Crisis:

The Investment tip here for investors in the current environment as every investment product has failed to offer stability during this financial crisis. At the same time, different markets have also been offering good investment opportunities for long term investments and hence one needs to have the liquidity to take advantage of the situation. For instance, equity market has failed to sustain intermittent relief and on the other hand, has been presenting buying options in blue chip stocks at regular intervals. Similarly, property too has been going through the phase of corrective mood and investors with long term focus can look for their choice.  However, for being liquid, one need not hold on to cash and instead, the money can be parked in fixed deposits or liquid funds.

Invest in a Systematic way: As pointed out earlier, equity markets have been volatile in the last few quarters and hence, look attractive for long term investors. However, investors need not rush to pick up at one go and instead, the investment process can be over a period of time. There are two ways of going about the staggered investment strategy. The well-known investment tip is to sign up for an SIP in an equity fund and keep buying units in a mutual fund on a monthly basis. The other option is to invest at one go but still take advantage of staggered accumulation through STP. In this option, an investor invests a lump sum in debt funds and transfers a fixed sum into an equity fund on a daily, weekly or monthly basis. The concept is similar to SIP but the biggest difference is that investor can still enjoy the benefits of SIP with one-time investment. Another added advantage is that mutual funds allow STPs even on a daily basis which can make a huge difference over long term. For instance, an investor can park Rs 2-3 lakhs in a liquid fund at the beginning of year and transfer Rs 1,000 to an equity scheme on a daily basis. For STP, the choice of equity funds can be more than one fund too.

The accumulation strategy need not be restricted to mutual funds alone. Even with respect to stocks, buy them in small lots. However, buying has to be planned carefully and you also need plenty of patience to get the acceptable price for your stock.