Financial Planning for FY2020-21: Smart money moves to make in the New Financial Year

Published: April 11, 2020 1:37 PM

The ongoing crisis is an opportune time for each one of us to take stock of our portfolio and find ingenious ways to not just tide through this volatility, but also to emerge financially stronger in FY2020-21.

Financial Planning for FY 2020-21, money moves to make in New Year, Covid-19, moratorium on loan EMIs, tax-saving investments, stock marketEvery crisis teaches us a significant lesson. In the case of Covid-19, the lesson is to plan for uncertainty that can potentially derail best-laid financial plans and force you to compromise on life goals.

As the world continues to deal with the spread and effects of Covid-19, we have quietly entered a new financial year. While FY 21 begins on a challenging note and a volatile environment, the future does seem grim and in the throes of a global crisis.

The word crisis comes from the Greek word “krisis” which refers to unexpected events that create uncertainty and threaten important goals – personal, organisational or economical. However, I personally choose to define crisis in the words of Albert Einstein – in the midst of every crisis, lies a great opportunity. Simply put, this ongoing crisis is an opportune time for each one of us to take stock of our portfolio and find ingenious ways to not just tide through this volatility, but also to emerge financially stronger in FY21.

Analyse your portfolio

Every milestone starts with a single step and every good portfolio starts with sound analysis. However, analysing your portfolio in these challenging times can be arduous. With most of your investments nose-diving south, the red marks on your balance sheet can be unnerving. However, do note that even the most fundamentally sound stocks have taken a severe beating on their valuations, given the current scenario and market developments over the past year. You can expect your blue-chip stocks to recover quickly, once life returns to normal.

On the other hand, fundamentally weak stocks have nosedived further in a bear market and thus, this would be the time to identify these weak links and to weed them out of your equity bouquet. Use the returns to invest in fundamentally strong stocks, that are now available at attractive valuations, to fortify your investment and enjoy better gains in the future.

Plan for unaccounted risks

Every crisis teaches us a significant lesson. In the case of Covid-19, the lesson is to plan for uncertainty that can potentially derail best-laid financial plans and force you to compromise on life goals.

Covid-19 brought the entire global economy to an unprecedented standstill, with layoffs and pay cuts seeming to be a harsh new reality. While finding a new job that best aligns with your professional and financial aspirations becomes an elusive dream, building an emergency corpus with limited resources will be a much-needed skill.

It is the right time for you to start afresh, on a new financial canvas. Rewrite your financial goals and broaden your time horizon. Stay prepared with adequate liquidity to cater to such unplanned emergencies. Discipline your spending and streamline your investments in a sustained manner across market-linked and fixed-return instruments. Focus your vision on building a substantial emergency corpus that can help you stay financially stable, without dipping into your savings in future.

Assess the leeway provided by the government

Times are tough and its tougher for the common man. Taking this into account, the Government of India recently announced several economic relief measures to ease the financial burden on the working class. With the announcement of a relief package of Rs. 1.7 lakh crore for the under-privileged, the Reserve Bank of India (RBI) has given a three-month moratorium on the payment of loan EMIs, while also extending the time-frame for investing in tax-saving investments, till June 30, 2020.

While these measures aim to provide economic relief in these trying times and are attractive to choose in these times of need, do read the fine print. Analyse and realistically assess if you really need to avail any of these measures and why. For instance, do not confuse a loan moratorium with a loan waiver. Moratorium means that you can choose to defer your EMIs for three months, whereas a loan waiver is writing off the loan in entirety.

While your credit score will not be impacted if you choose to not pay your EMIs for these months, you will have to pay off these EMIs in due course of time. If you are not facing issues in liquidity, it is recommended that you pay off your EMIs without deferring them, so that you do not add to your outstanding loan amount and subsequently pay, a higher rate of interest.

Similarly, while the last date of investing in tax-saving investments has been extended, utilise it only if it aligns with your financial goals. Don’t be over enthusiastic to invest, if your needs are catered to and your goals are well chalked out.

The final word

While markets will eventually bounce back, it will take some time for a much-awaited bull run. In the interim, use this time wisely and realign your financial goals, readjust your risk appetite and rejuvenate you’re your investments.

(By Rahul Jain, Head, Edelweiss Wealth Management)

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