Managing money in times of turbulence

If you still have a steady income, try to continue investing through SIPs; staying invested and riding through this severe downturn may prove to be a successful bet years down the line

Published: 15th June 2020 10:51 AM  |   Last Updated: 15th June 2020 09:04 PM   |  A+A-

Express News Service

The world is divided between those who have money and those who do not. Sad, but true. The solution in turbulent times is simple for those who do not have much. They have to find work and earn more to meet living expenses.

Those with money are not safe either. Uncertainty ahead can keep you awake all night. Managing your money and expenses in the context of a dwindling income can take a toll on you.

Indian households are relatively new to financial assets in comparison to the United States or other wealthy countries. The interplay of economic and financial market cycles can get unnerving to most of you. As economies around the world stare at a contraction, financial markets around the world are volatile.

Gold prices are soaring, and stock markets are volatile but rising at the same time. Investing can get confusing. If everyone is panicking, only gold should rally. However, a lot of money is chasing top company shares around the world.

In the context of the uncertainty that lies ahead, households in India are likely to conserve money. A quarterly review of household finances published recently by the Reserve Bank of India reveals a lot more.

The study finds that as of March 2020, over half of the household financial savings lie in commercial bank deposits, and another 13% is in cash at home. Effectively, two-thirds of the household savings are found in money or bank deposits. Just over 23% goes to insurance and about 7% to mutual funds.

A key highlight from the RBI study is that households in India continue to rely heavily on the banking sector for borrowing and investing their surpluses. That is despite a steady decline in the share of bank deposits.

The study observes that deposits with the banking system typically contract in the first quarter of a financial year that starts in April and expand in the last quarter of the fiscal year that ends in March. However, financial assets of households are likely to see a spike due to the lock-down in the first quarter to June 2020 and reduced consumption. But these financial savings could taper off if the economy takes a long time to recover and people do not have a credible income source. Right there, you have to make some crucial decisions.

What it means

The RBI quarterly study matters as it gives us an insight into savings and investing habits. The preference for bank deposits indicates a risk aversion in general. People do not want to take risks. “COVID-19 related uncertainties, have resulted in an outflow from mutual funds and a flight to currency holdings,” the report said.

At the same time, it predicts that a standstill activity in the construction sector could mean households moving funds to financial assets instead of physical.

There is a significant drop in the money flowing into equity assets. In May 2020, mutual funds witnessed a net inflow (net of purchases and redemptions) of Rs 5,260 crore. The six-month average was just over Rs 7,000 crore, according to the data from the Association of Mutual Funds in India. It is the lowest inflow of money in 2020 thus far.

What you should do

If you still have a steady income, you may want to continue investing through systematic investment plans. You can add more money to your monthly SIPs as you may save more due to the lock-down. If you are uncertain about your future income, you may want to take a look at your savings.

You will keep more money in cash than those who have an income. Since your expenses would be lower than earlier, you may want to try keeping your SIPs going as much as possible. If you have accumulated gold over the years as an investment, you may want to convert that into cash for your expenses and investment obligations over the next six months. That is assuming you have uncertainty in earning a monthly income. Staying invested and riding through this severe downturn may prove to be successful years down the line.

Families increase cash savings

13% of household financial savings were in the form of cash at homes as of March 2020, according to the RBI’s quarterly review of household finances

Over 50% household financial savings lie in commercial bank deposits as of the end of March 2020

(The author is editor-in-chief at


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