Effects of COVID-19 on the Stock Market and Strategies Retail Investors can adopt

COVID-19

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Mumbai, 21 May 2020 – The sentiment in the stock markets due to the COVID-19 pandemic is essentially gloomy. Globally, this is reflected in the frequent crashes in the share markets. An already slumping economy, the financial markets in India, are witnessing sharp instability as a domino effect in the global markets.

When it comes to investments and the right market timing, it is difficult to predict as it is difficult to gauge the market movements accurately. The Coronavirus cases continue to rise globally and in India volatility in the stock market is bound to persist for a considerable amount of time. However, the recent stimulus package announced by the Finance Minister has provided relief to indigenous businesses and the overall economy, which in return has created a positive impact on the stock markets, likewise uplifting the morale of traders and retail investors. With these reforms and sharp alterations in markets, market valuations have become quite attractive. This presents some buying opportunity for longstanding investors, who can slowly but surely start investing in equities as per their risk profile. If we go by historical data, it has always favored investments made in challenging times over the medium to long-term. This is indicated by the past market downturns like the 2000 dotcom crash, the 2008-09 global financial crisis, and the 2011 European debt crisis etc.

 

Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance said, “We would suggest the investors to keep calm and not panic. We know it is a difficult thing to do in times of extreme volatility, but patience and discipline is the need of the hour and can be quite rewarding for those who practice it during these unstable times. While the short-term scenario is bound to create fear or panic amongst investors and may influence them to withdraw from their investments or not pay their renewal premiums, it is during such times that the investments yield rewarding results for investors over the medium to long-term. Hence, the prudent thing is to at least get started and not panic and sell-off.”

 

It is in times like this that ULIPs have an advantage over other competitive investments. ULIPs typically have a longer-term orientation, a 5 year lock-in period, and helps investors in achieving their medium to long-term financial goals. ULIPs have various tax advantages due to their long-term nature, and regulations have also made the expense ratio of new-age ULIPs quite competitive. Under Section 10(10)D of the Income Tax Act, the maturity proceeds or sum assured of an insurance policy is tax-free, provided the sum assured is 10 times or more of the annual premium.

 

Also, one can get exemption up to INR 1.5 lakhs under section 80C of the IT Act. Another unique advantage of a new-age ULIP is that within the product, the investor can switch between various funds options like equity, debt, or liquid fund without any capital gains tax incidence, and can switch as many times without any additional charges or any exit load. This helps an investor to plan their asset allocation in a more efficient and tax-friendly manner, depending on market conditions and outlook. Therefore, the above-mentioned tax advantages, along with lower expenses of new-age ULIPs, helps in higher ‘net return’ in the hands of the investor.