Gobsmacked by 2020? Follow these guiding principles to stave off financial uncertainties in 2021

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The year 2020, with all its challenges, dramatically changed the way we work, the way we live, and the way we invest. It was a universally tough year, and yet it taught us several valuable lessons that most of us have adapted to and thrived.

When it comes to investing, the year has been full of remarkable events that shaped up the future personal finance landscape. I personally believe that the year is a reminder for investors to stay patient, disciplined, and be goal-based to tackle the uncertainties and achieve success.

The ‘Kuvera Insights State of Personal Finance Report 2020-21’ lists all the remarkable events that moved the financial market optimistically and the investor behaviour throughout the year. Despite the economic downturn, which is an obvious outcome of the global pandemic, 2020 has been an excellent and eventful year for the personal finance space in India.

Despite all the unforeseen economic disruptions, the industry also recorded the maximum number of investors coming onboard. Investors are nowadays knowledgeable, want to own their investing future and are conscious about the risks.

Almost every asset class made an impressive recovery in 2020. The stock market witnessed extreme volatility and the Indian stock market soared to an all-time high by end of the year. Due to the accelerated adoption of technology IT stocks generated stellar returns. Stocks in the pharmaceutical sector did extremely well due to covid-19 related opportunities. We witnessed the best performance of gold, delivering a return of around 24%, 10-year government bonds rose by 10% . The year was great for some of the emerging asset classes.

World’s best known and the largest cryptocurrency Bitcoin hit the highest levels by delivering more than 300% gain. Mutual funds also topped their AUM chart with increased inflows by the end of the year. Though the year was quite disappointing for banking and credit risk funds, pharma funds and international funds delivered great returns.

Inflows through systematic Investment plans (SIPs) hit the lowest in june 2020 but rebound to pre-Covid levels to end at Rs 8,418 crore in December.

Newer investment models, change in investor behaviour, coupled with various regulatory developments aimed at reducing any friction in investing have contributed hugely to the growth of the personal finance and investments horizon.

‘Ease of access’ alone driven by robo-advisors and personal finance apps have ensured that young people made use of their lockdown time to enhance their financial knowledge and tried their hands at investment. Women investors on the Kuvera app alone grew from 19% to 27%, a group of investors known for their maturity in being patient and taking goal-based decisions.

People have also realized the importance of health insurance, emergency funds, and disciplined investing.

Outlook for 2021

The launch of the Covid-19 vaccine at the beginning of this year is a positive development. A Budget boost for the Covid-19 vaccine will transform the Indian vaccine market and further boost the performance of the pharma sector. Travel, retail, real estate sectors are also expected to recover from the debilitating impact of the pandemic.

Major Budget announcements like exemption to file tax for senior citizens above 75 years, reduced timeline for reopening of tax cases from 6 years to 3 years and capital gains from interest income and listing securities to come pre-filled in ITR, provident fund contributions above Rs 2.5 lakh to be taxed, etc. do not warrant any change in investment strategy.

With corporates extending their work from home benefits and clearing a clear path of certainty offers an opportunity for the skilled to migrate back to their hometowns as well as better hiring opportunities in the tier-2 & 3 cities. This in my view will greatly improve the spending power in tier-2 and 3 as much as their exposure to financial investment literacy that could have a ripple effect if harnessed correctly. Health insurance will see a major upswing with most people realising the pitfalls of being ‘under insured’ is as critical as being ‘uninsured’ itself.

This year may see a logical correction led by inflationary pressures as much as excess liquidity being taken aback. Sighting the huge growth opportunities ahead, sticking to one’s investment strategy, goal-based asset allocation, maintaining a gradually increasing emergency corpus fund and gradually investing through the SIP (systematic investment plan) route would continue to be a great way for investors to achieve long-term success.

(The writer is founder & CEO – Kuvera.in. Views expressed are personal)