English

Hindi

DNA Exclusive: How to save, invest amid employment uncertainty? Investment expert shares wisdom

Written By Maitry Kothari | Updated: Nov 28, 2022, 08:21 PM IST

Amitabh Tiwari talks about what kind of financial precautions one should take to cope up with sudden job cuts.

Even in the most prestigious businesses in the world, such as Meta, Twitter, and Amazon, this trend of enormous layoffs has been spurred on by the jitters of the dreaded recession. The industrial sector is already feeling the effects of the global recession, despite experts' predictions that India won't see significant effects. Thousands of people have been rendered unemployed overnight as a result of these layoffs. Many of them are recent hires who hardly have any funds to cover the shock of being let go.
 
Amid all the confusion on how much to save and invest during this crucial situation, we got an opportunity to discuss the agenda of mass layoffs of youngsters from an expert, Amitabh Tiwari, a SEBI registered investment advisor who suggested various informative and practical ways to cope with the sudden job cuts. 
 
1. What saving options can one look out for when new to the job? 
 
I meet many youngsters who often ask why we need to save. We need to save to:
  1. Stay afloat during rainy days (job loss/loss of income due to health issues etc)
  2. Fulfil our dreams / buy things we can’t afford thru salary income of a month (car/house etc)
  3. Spend a happy retired life (meet expenses till death when we are not in a position to earn)
 
When new to the job, we can start with some basic investment products. Typically 3-4 asset classes are available equity, debt, gold, real estate, and offshore investments.
 
In equity, one could start investing in a SIP of an index fund. An Index fund invests in the stocks of an index say Nifty50 or Sensex in the same proportion as their weight in the index. 
 
If anyone had invested Rs. 5000 per month in Nifty50 in Nov 1995 when the index was launched, today it would have been roughly Rs. 1 crore. On the debt side one could invest in Debt mutual funds - Gilt funds which invest in Government of India Bonds or Dynamic Bond Fund which invest based on interest rate movements. One can also invest in RD or FD or buy gold (physical or even digital gold-Gold ETF) which can be used in marriage. 
 
One of the other questions often asked is how much should I save. Ideally, you should be saving equal to the national savings rate which was around 30% pre covid. 
 
2. In an untoward situation, if a private company employee faces layoff, what should he do or what can he do to cope with the expenses, till he finds his next job? 
 
All non-discretionary expenses should be stopped, and only spend on essentials. If you have savings use that to meet your basic expenses. If you don’t have savings then you can take a loan from friends/family. This is better as it is interest-free. If this option is not available then one could use a credit card to meet expenses, though this is a very costly option.
 
This is why savings is so important. People who have savings can easily pass this period. This is where the concept of emergency funds comes up. Typically one should have 3-6 months of expenses as emergency funds parked in FDs. 
 
If you have savings then you can wait for the best offer, else you will be forced to take whichever offer comes your way.
 
See we live in a very different world today. There is no concept of job security. We are living in a gig economy. Our parents worked for 35-40 years and had a retired life of an average of 25 years. Earning years were higher, and retirement years were lower. Today most of us will not have a job till the age of 60, let’s be real. Also due to improvements in medical science life expectancy is improving. So in the future, earning years will be maxed equal to or in some cases even lesser than retirement years that’s why savings is very important.
 
3. Are FD/Mutual Funds/Term Insurance the right options to go for? Since they will come with the benefit of a tax rebate as well?
 
When we start earning, we need to mitigate life risks. Risk of loss of life and risk of higher medical expenses due to illness. If we have dependents then one should opt for a life cover. Corona has shown us how life is so uncertain, so many lives lost have left behind devastated families. So we have to protect our families against loss of income in case we are unfortunately not there. 
 
Typically insurance companies will give you a max of 60 minus your current age multiplied by your current income per annum as insurance cover. At a young age, premiums are also low so you can opt for full or lower cover as your income levels permit. 
 
Mutual funds, indexes, gilt, dynamic bond, funds, and gold ETF are all good options. Even direct equity/stocks. There are more than 20 large-cap stocks which have given a CAGR return of 25% and above, which is double the index return in the last 20 years. 
 
Wealth generation is a time taking process. Warren Buffet started investing from age of 10 and became a millionaire at the age of 60. The problem arises when we aim for higher returns. Higher returns come with high risk. Preservation of capital is very important. Don’t go for spurious products which promise very high returns. Don’t invest in products which you don’t understand. 
 
4. Are there any legal aspects one can look out for, to get any compensation? 
 
Normally employment contracts have a notice period element in them. If you have a notice period then the employer is bound to compensate you for the notice period in case you are fired. 
 
5. What can be seen as the primary reasons for these recessions?
 
A recession is when a country records negative GDP growth in two successive quarters. In India, there is no such thing now. The US also recorded positive growth in Q3. 
 
Inflation is high in most countries after Corona. This has led to increasing in interest rates across the world. When rates rise, demand falls due to which the turnover of companies declines. Also, interest cost goes up for companies leading to lower sales and lower profits.
 
There are only two ways to increase profits either high revenues or low costs. That’s why we see companies laying off employees. Due to globalisation economies are linked, and MNCs back home in the US are under pressure as seen by recent results hence they are resorting to firings. Startups also feel funding pressure and hence many resorts to firing.