Credit & Investment Disciplines to Maintain this Festive Season

Last Updated : Nov. 7, 2020, 7:46 p.m.

This Festive Season is quite different from the earlier ones given the hardships most of us have gone through due to the ongoing COVID-19 pandemic. A lot of people have lost jobs or are facing salary cuts, making their day-to-day life a ‘Battle’ in itself. You may not be facing such issues, but using too much credit for shopping this festive season is not warranted either.

While it could help you celebrate festivals with much fanfare, paying escalating interest later won’t make you feel good. Also, many just look to spend and not invest, quite surprising given the auspicious time they get to do so.

So, in this post, we have pointed out some credit and investment disciplines you should maintain this festive season. Ensuring the same will help meet your needs, reduce your cost and lay the foundation for a strong future. Let’s read and implement the same!

Credit Disciplines to Have this Festive Season

Credits have an inherent cost of interest, which could spiral out of control if not used well. So, keeping a close eye on your credit card spending and reducing your loan burden will serve you well this festive season. We have mentioned below the credit behaviour you should embrace when shopping with a credit card and servicing loans. Take a look.

Shop for What You Can Pay and Not What You are Allowed to

People do shop extensively during the festive season without giving due attention to what they can afford. If they don’t have cash, they will binge on credit cards and shop for whatever they want and at whatever price the particular product commands. Even if you can’t pay your credit card bill in full , you can escape a late payment fee by paying the due partially. Yes, you can pay as low as 5% of the outstanding credit card balance a month to avoid a fee.

But doing so can put your finances in jeopardy by making you pay interest at a massive rate of 30-45% per annum. With successive shopping made on a card month after month and paying the bills in this fashion, even that 5% could become too big for you to pay over time!

So, our advice would be to scrutinize your shopping requirements for this festive season. Given the times we are in, it won’t be bad if you just shop for the absolute need and not what you crave. This will ensure full payment on time and help you avoid interest payments.

Shop Based on Your Income and Savings This Festive Season

It’s all good when your credit card shopping is in line with your income and savings. Many find it tough to maintain the same during the festive rush. But those who do remain ‘HAPPY’ during and after the festive season. Don’t shop for more than 5-10% of your net monthly income with a credit card. This will ensure celebration at less cost.

How to Approach Loan Restructuring This Festive Season?

Many of you may be finding it hard to service your loan obligations given the disruptions caused by the COVID-19 pandemic. The Reserve Bank of India (RBI) has, therefore, come with a relief measure by allowing banks to restructure your loans and even credit card debt. As part of the restructuring plan, banks can offer you a moratorium for a maximum of 2 years or extend your loan tenure by the same. This will not affect your credit history as it would do in a normal case.

But lenders could charge additional interest if you choose any of the two options stated above. If you have lost incomes, maybe you should go for a moratorium. In case salary cuts are making it hard for you to pay your dues, you can opt for an extended tenure. It will decrease the monthly installment amount and increase the possibility of loan payment on time. But in either of the two cases, you will need to decide the tenure correctly. Else you might curse later on by paying massive interest to the lender!

So, don’t go for the straight 2 years. See your income, savings and decide the right tenure for you. If all these indicate that a 6 month to a year-long moratorium or tenure extension will be good for you, go for that only.

The last date to opt for Loan Restructuring could be any day in December 2020. So, check with your lender about the same. However, you can get this restructuring benefit only if your loan account was standard and not a non-performing asset (NPA) as on March 1, 2020.

Go for Attractive Loan Balance Transfer Options

If you have remained immune from COVID-related disruptions, maybe you should cash in by doing a perfect balance transfer of your loan this festive season. A balance transfer reduces your interest obligations by allowing you to switch your loan from one lender to another at a lower interest rate. The rate you get on a balance transfer might be lower than the present rate, yet the overall savings will feel negligible!

So, you need to introspect your balance transfer offers carefully this festive season. The interest rate difference in a personal loan should be a minimum of 4-6%, while the same should be at least 0.25-1% in a home loan. Such differences will ensure good savings for you.

What Investment Disciplines Should You Bring in this Festive Season?

Investments lay the foundation of the future we are likely to witness. When done properly, you live without any worry and exactly the opposite when you commit investment mistakes. Investing properly will require an understanding of the individual you are, the financial goals you want to achieve, etc. Let’s focus on the investment disciplines you could bring in yourself this festive season.

Choose Investments According to Your Risk Appetite and Financial Goals

Normally, the risk appetite remains high when you are young and comes down gradually over the years. But that can’t be said about all! Some young individuals might be risk-averse too. Going by your risk appetite, you should choose your investment. Individuals with a high-risk appetite will find investing in stocks more appealing.

But shall they invest in stocks directly or choose a different route? Yes, you can also invest in stocks via Equity Mutual Funds under the supervision of a fund manager. The concerned manager will use his/her experience and market insights to move your investments accordingly. Investing in equity funds will give you the benefit of diversification too as your money will go into different stocks. In case one stock falls, the rise of other stocks will offset the fall.

Investing in stocks directly is advisable only if you know the dynamics of the capital market and can take the right steps when faced with an adverse market situation. Similarly, individuals with a low-risk appetite should invest mostly in debt funds, fixed deposits, etc.

Coming to the financial goals, if you are investing for a home purchase, education and marriage of children, retirement corpus, putting money in equity funds is advisable as they will most likely help you achieve the desired corpus. Even those who have a low-risk appetite should invest a reasonable amount in equity funds. Because FDs and debt funds may not help meet such needs given their expected single-digit returns.

Choose Mutual Funds and Fixed Deposits Carefully

Choosing mutual funds based on their performance over the years will hold the key this festive season. Check the returns of funds and compare that with their respective benchmark. Also, see where the particular fund stands in its category. The fund you choose must have performed better than their benchmark and have a good ranking in its category too. You can check these on mutual fund research websites. When it comes to fixed deposits, choose the bank that offers relatively higher interest rates.

Shall You Increase Your Investment Amount this Festive Season?

You can invest in mutual funds via a Systematic Investment Plan (SIP) or lump sum. An SIP is a fixed amount you invest in mutual funds at regular intervals, whereas a lump sum investment is a one-time investment in the said asset. An SIP is widely preferred by investors as it is not only affordable with investments starting from as low as INR 500 monthly but also brings an investment discipline in you. Even then, you could miss the desired corpus due to market fluctuations. But if you hike your investment amount this festive season and continue to do so year after year using the step-up SIP option, chances of accumulating the desired corpus are more.

A step-up SIP allows you to increase your investment amount by some every year. For example, if you were investing INR 10,000 monthly, you can hike it by 10% every year. So, you will be investing INR 11,000 now and INR 12,100 the following year. This is how the pattern goes. Your yearly remuneration hike will help you invest that extra to achieve the desired corpus.