Financial Cocktail Samosas: Bitesized money morsels for YOU, 15/07/2020

Financial Cocktail Samosas_ Bitesized money morsels for YOU, 15_07_2020

Don’t let Recency Bias distract you

‘In January 2020, when the Indian equity markets were at all-time high, many of our investors wanted a review of their portfolios with the aim of increasing their equity exposure. Two months later in March, some people were almost ready to sell off all their equity holdings due to the market downturn. Our conversations with some of them revealed that some people in their friends and family circles actually went ahead and sold-off their stocks and equity mutual funds in panic.

The tide is turning again. As the markets have regained the lost footing, the conversations are again bordering on raising equity exposure and taking more risks in their portfolios.

This is called Recency Bias in behavioural science. Those who were afraid that the equity market will continue to fall or may not recover ever again have been proved wrong. Similarly, the recent rally might also not be permanent. Who knows!

As an investor, don’t let Recency Bias distract you. The only thing it can do is to distract you from your financial goals and get you into deep troubles. Maintain focus on your goals and asset allocation. Of course, it goes without saying, that if situation drastically changes, we can always review your portfolios and discuss if it needs any changes.

Top-up your SIPs to keep pace with your increasing income

Often it has been observed that many people, in order to time the market or because of their ignorance, keep sitting on a large amount in their savings bank account for a long time, literally earning nothing after tax. Such an attitude can prove costly in the long run to an investor. Ideally you should keep increasing your investments as and when you get an increment to your earnings.

One of the best ways of doing so is opting for a Systematic Investment Plan (SIP) along with a top-up facility. The SIP top-up option allows you to enhance the SIP instalment by a fixed amount after laid-down intervals on a regular basis. For instance, you can choose to enhance the SIP instalment amount half-yearly or yearly by some percentage of basic amount, say 10% or 20% or you can choose to increase it by specified amount, say Rs 500 and then in multiples of Rs 100 or Rs 500 depending on the mutual fund company’s policy. Use this facility to keep pace of your saving in line with your income.

Have you updated your nominee details in your investments?

One of the main objectives of investments is to secure the future of family members who are financially dependent on you. For that matter, it is very essential to mention or update nominee details in your investments. In case of any unfortunate incident (death of investor), if nominee details are correctly mentioned in the records, it eases the process of transmission of funds to the heirs of the deceased investor. On the other hand, if nominee details are missing, legal heirs may have to produce a plethora of documents and undergo processes to be able to establish their claim on the investments. In times of grief, such a time-consuming and cumbersome process can be a distress for the loved ones.

Therefore, remember to correctly make the nomination at the time of the initial investment. In most cases you are also allowed to update the nominee details as and when you want.

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