It has led to the recent heartbreaking stock market crash
SIP became the icon for this revolutionary shift in investment habits.
COVID-19(Novel Corona Virus), which first emerged in the Wuhan city of China, has now spread to 203 countries and territories with more than 9 lakhs Coronavirus cases killing more than 45,000 people and hundreds of thousands are in quarantine. Coronavirus outbreak reported in almost every continent except Antarctica. In this read, I’m going to share with you the impact of the deadly Coronavirus pandemic on the financial sector and simple ways to deal with Mutual Fund investments in this crisis.
Impact of Coronavirus on the Stock Market
It has led to the recent heartbreaking stock market crash, causing fund values to deteriorate suddenly and dramatically because economies worldwide have stalled due to the lockdowns imposed to prevent the spread of Coronavirus. Although Indian equity markets valuations have become attractive on the back of recent market corrections, the stock markets may continue to be volatile until the pandemic globally comes under control.
The story of the Systematic Investment Plan (SIP) becoming Iconic
In the 90s, the government’s agenda was to shift a larger share of household savings into financial instruments from hard assets like real estate or gold. Moving in that direction, the mutual fund industry undertook a major campaign that focussed on the benefits of long-term disciplined investing in equity MFs.
As a result, SIP became the icon for this revolutionary shift in investment habits. The majority of Indian middle class, from clerk to the contractor, started SIP in equity MFs. It got established as a panacea for life goals like children’s education, retirement plan, capital purchases, etc. and to date, a larger number of middle-class savings channelized through exposure to Systematic Investment Plan (SIP).
But, the government’s agenda has not fulfilled yet as investments moved only into equity MFs, not across a broad spectrum of financial instruments. Overexposure of benefits of investing in equity MFs has dominated the risks extensively in all forms of mass communication for which the country witnessed a disproportionate amount of middle-class savings chasing a few listed equity stocks.
Current market scenario demands “Introspection”
In India, the economy has been hit with the shutdown of shopping areas, malls, and parts of the manufacturing industry. The businesses, mainly the small businesses and the people depending on them, are badly hit. The demand for consumables will also be impacted for at least a quarter. The banking system will have to support the industry during these challenging times and the need for forbearance on loans. However, shutdowns are essential to control the progress of the pandemic.
In this scenario, this pandemic shows that this is high time for introspection, and certain things need to be analyzed carefully. It serves as an opportunity for the regulator to create new structures and instruments for investment in other asset classes. It can be infrastructure or real estate that needs massive funds.
Making capital market healthy requires two things. Firstly, the household savings need to be channelized into diversified sectors of the economy. Secondly, multiple financial instruments need to be created for the said channelization. These will not only ensure efficient allocation of capital across the economy but will also shield household savings from varied risks like the current Coronavirus crisis.
Safeguarding household savings against crises like the COVID-19 outbreak globally can be attained by moving savings into other asset classes as well as other financial instruments. However, that also requires the tax-structures, including income tax, GST, stamp duty, etc. to be at par with listed equity funds. It is no doubt a challenging task, but catastrophes are ideal times to do it.
How are AMCs dealing with the situation?
In the mid of the gloomy situation, the Corona crisis has led to the opportunities to acquire higher numbers of Mutual Fund units at a cheaper NAV by investing in a down market. But, at the same time, this highly-infectious disease has made the operation of physical forms for MF transactions, including new or additional purchase, switch in and out, redemption, etc. difficult.
An announcement has been made by the Association of Mutual Funds in India (AMFI) that the offices of the Asset Management Companies (AMCs), along with their Register and Transfer Agents (RTAs) will remain closed for some time to stop the spreading of the COVID-19 infection among employees.
“Under the circumstances, as a social-distancing measure to ensure safety of investors, distributors, visitors and the employees of the mutual funds & their RTAs, all Mutual Funds shall keep their collection centers / branch offices (“official points of acceptance”) closed with effect from Monday 23rd March 2020 and allow only online transactions through various electronic modes, such as mutual fund websites /web-portals / various digital platforms /apps or virtual channels etc. till the situation comes under control and until social distancing advisory is withdrawn by the authorities.”
What are the major steps taken to normalize the situation for investors?
The government announced a complete lockdown on private offices till April 14, as of now, in the wake of the fast-spreading Novel Coronavirus. But financial services have been exempted from this rule as stock exchanges will function as normal. Therefore all SEBI-registered companies, including mutual funds, will remain open, and their employees will work either from home or on a rotational basis to ensure their safety and smooth functioning of mutual fund operations. Mutual Fund houses are also trying to provide seamless services.
If you have systemic investment plans (SIPs) in mutual funds and want to continue, you shouldn’t bother in the current market scenario, as the operations will get back to track within a few weeks. The investors who wish to make redemptions, switches, new investments, or profile or account-related changes can do most of the activities without any difficulty as before, in case you have used a digital platform. Now becoming tech-savvy and go online is the only and the best option due to the closure of offices.
If you, as an investor still doing transactions through physical mode, you may face some inconvenience. However, the existing investors doing physical transactions need not worry. AMFI, writing a letter to Securities and Exchange Board of India (SEBI), said, “As an alternative to help such investors, AMCs/RTAs will accept transaction requests sent from the registered email IDs of the unitholders / registered domain IDs of institutional investors.”
“Redemption payment will be made to the registered bank account of the clients.”
The highly infectious COVID-19 disease has spread rapidly in Europe, the United States, the UK, and other Eastern countries forcing the shutdown of offices, schools, cafes, cinema halls, and malls to save lives. These days, there is also a steady rise in Corona cases in India. Hence I would advise all investors to have patience because the situation will normalize soon and, of course, stay home and maintain social distancing.
So, why not start from today itself!
That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.
(About Author: Arindom is a professional writer, editor, blogger and a member of the International Association of Professional Writers and Editors, New York. A management postgraduate in finance with extensive industry exposure, he is associated with many reputed global online magazines and publications as a regular contributor. He loves to help his readers writing highly informative and well-researched investment-related content to make informed decisions.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of organization)