Implications of Current Financial Crisis a Senior Citizen View
roopesh_kumar March 18th, 2009
I was quite confused on the crisis that seems to have started with a few banks failing outside India, and then suddenly almost every company that I am aware of seems to be in trouble – what is going on and what should i be doing?
First, what happened internationally is explained in the diagram, and as is clear will lead inexorably towards a recession if it is big enough, and YES it is big enough and widespread enough.
At a more ‘micro’ level, the value of my flat/ house has dropped, share prices have fallen drastically, my mutual fund NAV fell, there are rumours about my bank falling, and what about my other investments – Post Office, LIC etc.
Indian Banks are safe. The reason is simple, conservative policies followed by them and by RBI ensured that they did not invest in the high fangled risky instruments where global banks lost a lot of money. Even if they did (e.g. ICICI Bank), the investment made was miniscule as compared to overall assets. Again, investments in LIC/ UTI/ Post Office are also safe.
On share / mutual fund investments, i was happy when Sensex went up so i must now be philosophical when it goes down. If it is a fund, taking money out will only help if I know what to do with the cash - I could certainly invest it in debt, and there is good interest being offered by banks today.
Or i could stay invested in the mutual fund, and hope that the fund manager is buying good shares – hopefully making money in the next few months when Sensex improves. I might want to check that my fund is doing this, or actually move some money at least into such funds, this will be low risk growth (lot of very good companies are available at very good valuations).
You could do this yourself as well directly. Bear in mind that India is still growing substantially as per newspapers, therefore our companies are in better shape than companies abroad. And if India does better than other countries, money will flow into India from abroad as well.
I cant do much about my flat/ house value, but the value doesn’t matter if i live in it. And in any case, this should be a temporary slowdown – look at the number of people pouring into cities nowadays, all of them need housing don’t they ? Prices will bounce bank, eventually….
Therefore, first protect what you have - put money in very safe places and instruments e.g. FDs in Indian Banks. And for growth over 2/3/ 4 years, put some money into growth funds or invest yourself into very safe stocks like Tatas/ Infosys (not Jet/ Kingfisher)which surely will help in recovering some of the cash you lost. But be very clear, invest for at least 2/3 years not less..
Use this break to sort out other things – the shares that still remain to be dematted, the overdue litigation on your property..
And of course, go easy on the expenses – avoid the trip to US, instead try Benares…