What To Do During The Crisis and Lockdown?

The Indian government has called for a lockdown for 21 days. So you must all be at home with family including kids. So I am guessing you must be experiencing a taste of my life! Meanwhile the markets are doing things they are best known for, i.e. being irrational. Well, actually if you ask me, the markets seem more rational now than before. On the other hand, government and RBI are doing lots of things to overcome the negative impact of COVID-19 on people and economy. While analysts, bigwigs and news personnel are scaring the pants off us, complaining that governments are not doing enough and that there is an impending recession. It does not matter what everyone is doing, thinking or how irrational the market is, you can be more rational during these trying times and take it as an opportunity.



There are two topics that I want to cover here. The financial side and the personal side. In each of the topics there is the short term impact/action and then there is a long term one.


Financials

Make sure you are financially prepared for the crisis. The preparation should have started a long time ago and it should have been ongoing. Not something you do today really. One of the preparation is to keep an emergency fund of at least 3 months worth of expenses saved in extremely liquid assets like bank savings or overnight mutual funds. I have always suggested 3 to 6 months of expenses kept in bank for emergencies just like this one.


This fund can be used if you were to lose a job or stop receiving income. Some may have been laid off, some people might not receive salary or a receive a lower salary during this time. The emergency fund will come to your aid in such situations. Don’t be tempted to invest this money into the market assuming it might be a good opportunity. The emergency fund is just for emergencies. Use it wisely. On the other hand if it is depleting, make sure to replenish it by selling some of your investments. Doesn’t matter the condition of the market. You need the emergency fund.


Support people who might not have regular income like milkman, maid, or anyone else you know who depend on income they get only if they work outside. Pay their salary even though they cannot work for you. You can also donate to various state and national funds or even to red cross.


Government is already doing what it can to support low wage workers by providing ration and even delivering to their doorstep. About 800 million people will get free cereals and cooking gas apart from cash through direct transfers for three months. Also the government will provide 5 kg of wheat or rice and 1 kg of pulses free every month for the next three months (source). I am sure there is more that the government is doing and will do in future.


To help the middle class, RBI has allowed 3 month moratorium on loan EMIs and also reduced the repo rate by 0.75% which is a huge cut. Although I am not particularly happy about the rate cut because it does not really help. The banks rarely cut the lending rates because they still have to honor the FDs which are fixed at the previous interest rate for a fixed duration. Moreover the FD rates are quite high compared to the repo rate because otherwise people will not deposit with banks, instead they will go with PPF or other government schemes offering high interest rate.

Update [April 02, 2020]: The govt. has reduced the interest rates a little bit. So this is not as bad anymore.


Finally a word about EMI moratorium. First, lending institutions are not required to offer the moratorium. It is just a recommendation by RBI and left it to the lending institution. Second, assuming that your lender is offering this option, you most likely need to let the institution know you are opting for the moratorium. It is not active by default. Third, I highly suggest that you don’t take it if you can pay. Especially if you have your emergency fund in place. While it does not hurt the credit score or otherwise change any terms of your loan, it is an EMI that is just deferred and you will eventually have to pay it. It will hurt you more psychologically when you have to pay 3 month EMI in one go. Remember, the moratorium is is not a concession, it is a deferment of payment.


The only actionable thing you can do is to lock your FDs at the current rate for a longer duration (if you have FDs or would like to invest in them) before the banks cut the FD rates inline with repo rates. You should also rebalance your portfolio. Don’t invest into equities all in one go. Do it over several days. This may or may not be the bottom of market. So keep rebalancing if and when you see an opportunity. The market is just fairly valued in my opinion, so don’t expect a huge recovery from here nor is there anything to worry.


Personal

On the personal front, this is one of the best opportunity to learn and experience something new! Don’t start playing games or watching movies all day long. Well I guess you have to work from home, so perhaps you won’t have much time. In any case, this is a good time to spend time with kids and family. Some may like it, other’s may find it overwhelming or boring to stay home all day.


If you are bored, learn something new. Since I am already used to this kind of lifestyle I already have backlog of things I want to learn. Most recently, some photography classes became free. So I want to pick that up. May be you have an interest in something that you can learn now.



The next thing you can do is lifestyle changes. If you have a habit of eating out, this is a good opportunity to quit. Given that you are supposed to follow social distancing, you should ideally not order food from outside. Why not take that as an opportunity to completely take out (pun intended) that eating habit?



Finally, this is also a good opportunity to start exercising at home or learn a new skill. There are many free videos online. Here is one of them.



Final Word

Stay indoors. Wash your hands frequently. Don’t hoard food, we are not in a crisis situation and there is plenty for everyone. So buy what you need and leave something for others. Stay with your long term goals. Stay healthy, stay invested and avoid knee-jerk reaction to good or bad news. Take all precautions and stay safe.


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