COVID19 originated in the Wuhan province of China and has spread over 200 countries in the World. It is a health-related problem but has impacted the economic life of nations. There are job losses, salary cuts, and increase in unemployment.

It has impacted the personal finance of individuals and the financial planning of the families. The income of the families have been impacted. On the expenses side, some expenses like traveling, eating out, commuting to office have reduced. Children are attending online classes from home. Medical facilities are found wanting and inadequate. The instances of overcharging by hospitals galore.

The savings of the families who have faced reduced income have been affected. The equity market had corrected 38% but have recovered. The individual portfolios which were in red aftermarket the correction are in the green zone now. The government has announced Rs 20 lakhs crore stimulus package to support to poor and the industry. The RBI has provided liquidity support in the market. The repo rate (the rate at which RBI lends temporarily to Banks against securities) has been reduced to 4% after a reduction of 135 basis points since Feb 2019. The reverse repo rate (the rate offered to the Banks for parking their surplus money with Reserve Bank of India) has been set at all-time low at 3.35%.

Arising out of the availability of huge liquidity with the Banks and lower reverse repo rate by RBI, the banks have reduced deposit rates. SBI has reduced 1-year FD interest to 5.1%. The loan rates have also got reduced. The home loan interest of SBI is at the lowest level of 6.95%. The rate on public deposits such as PPF, Postal deposits, Senior Citizen Schemes, Sukanya Samrudhi Yojana etc. are linked to the Repo rate and are decreasing gradually. The decline in interest on deposits has impacted the financial life of Senior Citizens. The RBI has set long term inflation target between 4% to 6%.

The equity market is highly volatile. There are gaps between the performance of the market and the Index.  Few stocks of the index such as Reliance, HDFC are rising but the majority of the Nifty stocks are yet to come up to the pre COVID level.

Financial Planning New normal

Income: It is time to upgrade the skills of the family members and explore the opportunity for new sources of earning.

Expenses: The forced reduction of expenses will have a good impact on the family budget and saving therefrom should be invested for long term goals.

Emergency Fund: It is essential that every family park 6-12 months of expenses in the liquid assets to meet any contingency.

Insurance: Health Insurance is an absolute necessity now. Life Insurance, preferably Term Insurance for earning members should be taken with adequate sum assured.

Asset Allocation: One must invest in various asset classes keeping in view the life stage, risk profile and goal horizon. The portfolio should be diversified with different asset classes such as equity, debt, and Gold etc. Equity is preferably invested through Direct Mutual Funds across categories like Large caps, Mid cap, Small cap etc. In Fixed Income, the credit risk should be avoided, and Debt exposures diversified across durations. The total number of schemes in Mutual Funds was recommended to be between 4-6 schemes hitherto; may be between 10-15 schemes now, depending on the corpus. This is to achieve to diversification amongst AMCs, Sectors(Large Cap, Mid Cap, Small Cap, International   and thematic) and Durations(Ultra Short Term, Low  Duration, Money Market, Short Duration, Medium Duration, Long Duration, Dynamic Bond Fund and Constant Maturity, etc.)

Review and Rebalancing:

The portfolio should be reviewed every quarter/half-yearly and rebalanced at least annually to restore it to original asset allocation.

Assumptions (New Normal):