Through financial awareness, we can preserve and protect our hard-earned money from unfortunate events.
By Rahul Jain
Given the recent meltdown of one of India’s leading private banks, close on the heels of a co-operative bank last year, has significantly affected investor confidence. Indians have long regarded Banks as custodians of their hard-earned money and the recent turn of events have raised serious questions on corporate governance in the Indian Banking system.
As investors, however, the onus of safeguarding our wealth lies with us too. Through financial awareness, we can preserve and protect our hard-earned money from such unfortunate events. This write-up focuses on certain aspects that can help tide over such difficult situations with ease.
Maintaining two bank accounts
Having accounts in two different banks can help you deal with the type of crisis we are witnessing currently. If withdrawals from one bank are capped, you have another account to meet day-to-day expenses. What is key here, is for you to spread your savings across both accounts equitably rather than putting a large chunk of your savings in a single account. Dividing your savings equally in two bank accounts also allows you to continue meeting costs for running a family and addressing essential commitments such as EMIs, SIPs, among others, without stress or break in continuity.
Invest in financial assets
Cash lying idle in a savings account serves little purpose. Not only are the returns low, but in case of unfortunate events, it is difficult to access them. In order to compound wealth in the long run and mitigate risks, it’s in your interest to invest across financial assets, such as mutual funds, gold ETFs, etc., which can be liquidated easily when required.
One of the most transparent and well-regulated financial tools, mutual funds offer easy redemption. Gold ETFs, on the other hand, can be sold on stock exchanges through a broker using your Demat or trading account. Thus, investing in diverse financial assets can come handy in times of crisis, giving you easy access to finances when needed.
Don’t be lured by high-interest rates
In an era of falling interest rates, a high rate of interest is a common marketing ploy used by financial institutions to attract customers. However, note that high rates are applicable only on deposits over a certain limit. Also, interest income is exempt from tax only up to a specific limit. Anything above that is clubbed to your overall income and taxed as per the tax slabs.
Interest rates should not only be the criteria for considering an investment when choosing to deposit your hard-earned money. Look at business models, management and annual balance sheets, before deciding. Annual reports of prominent financial institutions are readily available in the public domain. Go through them and invest in fundamentally strong companies to keep risks at bay.
Keep an eye on credit-related events
This is another effective way to stay ahead of current developments in these uncertain times. Given the increase in digital adoption and access to information, credit-related events are easy to access. In case of a negative event, continue tracking it on a regular basis.
News of major defaults or serious flaws in leadership should serve as red flags and you must be alert to adapt to rapidly changing developments. You can withdraw your money before restrictions are implemented on such transactions. Ignoring such events can be a cause of major heartburn later.
Times are crucial and uncertain and thus, saving your monies is your responsibility. Educate yourself and stay aware of what is happening around you. By taking charge of your finances, you can stay on solid footing in times of crisis.
(The author is Head, Edelweiss Personal Wealth Advisory)