Investors are more discerning and more informed: Scripbox’s Prateek Mehta

In a disrupted world amid the pandemic, digital wealth management firm Scripbox has seen many emerging trends amongst retail investors. Prateek Mehta, co-founder and chief business officer of Scripbox, in an interview explains that creating a contingency fund was a top financial goal for more than half (54%) of the 630+ respondents. Edited exerpts.

How much has the need for an emergency fund developed due to Covid-19? How can one create an emergency fund?

The creation of an emergency fund is one of the basic tenets of wealth management. Any well-rounded financial plan will involve the creation of an emergency fund that ensures your basic lifestyle is not affected, no matter what uncertainty you face.  Covid has accelerated the adoption of such practices. Last year, on the occasion of World Savings Day, we conducted an online survey, where we discovered that creating a contingency fund was a top financial goal for more than half (54%) of the 630+ respondents. The first step to creating an emergency fund is to determine the size of this fund. This would depend on several factors such as your income, lifestyle, and number of dependents, existing debt, and so on.

The rule of thumb states that your emergency fund should cover at least 6-9 months of your monthly household expenses. If you are a family with kids and only one earning member, then the amount should cover your expenses for 12 months. Liquid funds are a great option as they carry less risk and are among the most stable instruments available. Setting money aside periodically for emergencies can seem like a big task, but with a little planning, financial prudence, and a step-by-step approach, you can easily get there.

In this period, where markets are unstable, what are the best investment avenues to look at for new investors?

Before you consider investment avenues, it is important for you to understand your financial goals and investment objectives. Some financial goals, such as retirement or saving for your child’s education, have a longer time horizon, and so, the investment solutions you choose will be different compared to those for a shorter horizon. For long-term financial goals (7-10 years), equity funds are a great option. Equity is the primary asset class when it comes to building wealth over the long term due to its ability to stay ahead of inflation. The primary ways to invest in this asset class involve direct equity (stocks), ETFs, and equity mutual funds. On the other hand, if your financial goals or investments have a shorter time horizon, then you can consider fixed-income instruments. Debt mutual funds should be the fixed income instrument of choice given no lock-in period, low taxes upon withdrawal, and returns that are at least on par with fixed deposits. A mix of funds spread across categories factoring in credit quality and interest rate risk would be ideal.

How do you see the markets evolving in the next one year?

Equity markets are quite unpredictable. They can be influenced by many factors, including ones that are out of our control. Short-term trends cannot be predicted with reasonable accuracy. That said, we believe that over the long run, prices should reflect the underlying value of the business, and there are substantial opportunities for investors. We continue to believe that the factors that are working in favour of Indian companies are quite strong, and therefore over an extended period, Indian markets will do well.

As a digital wealth management firm, what are the newer trends you have witnessed in the last year when it comes to investment?

Customers are more discerning. They are more informed and know what to expect. The prevalence of information makes them better positioned to find out what meets their requirements and what does not. Among those that have managed to retain jobs and do well, there is a sense of rationalisation – they realise that things can change quite quickly.

Rates of savings and investments have gone up for a few investors. Lots of investors have entered into equity markets and have started directly investing via brokerage platforms. Many are realising that it is not easy to make money in equity or derivative markets without the right expertise. Many first-time investors have started investing in cryptocurrencies attracted by the frenzy around them.