The trouble is all yours to bear when an investment gets stuck

Having part of your corpus inadvertently stuck in an investment can spell disaster, especially at a time when covid-19 has derailed the finances of many households. From depositors in Punjab and Maharashtra Co-operative Bank to investors in the six Franklin schemes to those in stalled real estate projects, people have devised various methods to deal with sinking a portion of their savings in an investment. We take you through their stories, the compromises they’ve had to make and the lessons they’ve learnt.

Shift in goals

Gangwani, who has returned to his home town of Gwalior since covid-19 hit as he is working from home, started investing in the Franklin Templeton scheme in 2015. “I did my own research before investing," said Gangwani, who is a finance graduate. He was aware of the credit risk in the fund, but thought that if one company defaulted, side-pocketing would safeguard his investment. “I didn’t anticipate the entire fund getting frozen," he said.

Though Gangwani’s overall finances have not been hit as he has savings in other instruments, he may be losing out on making the most of the real estate downturn due to covid-19 because the down payment he had accumulated in the Franklin fund has got stuck. “I was looking to buy a home in Pune or Indore, but now I can’t take advantage of the downturn. Although prices haven’t fallen by much, I’m just hoping they don’t go up," said Gangwani.

The setback has been a lesson for him. “One should do their due diligence to increase the probabilities of a successful outcome from holdings in a portfolio. But at times it may not be possible to possess a fool-proof way to forecast certainty of deliverance or to identify an alteration in characteristics of a fund well in time. Therefore, asset allocation across fund managers within an asset or sub-asset class is a must," said Deepali Sen, founder partner of Srujan Financial Advisers LLP.

She added that if one does end up in a tough spot like Gangwani, the only option is to delay or write off one’s goals. “Also step-up investing amounts from your future cash flows," she added.

Lifestyle change

In September, PMC Bank depositors saw a year gone by since the bank came under the Reserve Bank of India (RBI) restrictions.

Anita Lohia, 60, a retired teacher based in Mumbai is one of PMC Bank’s depositors, who has been fighting to regain access to her life savings which are stuck in the bank. “We had no idea what the difference between a commercial bank and a cooperative bank is, and that cooperative banks don’t have the same guarantees. Most common depositors have no idea, otherwise they would never risk all their savings for a slightly higher interest rate," she said.

In June, RBI raised the overall withdrawal limit from PMC accounts from ₹50,000 to ₹1 lakh, but Lohia, like many others, thinks this is far from adequate. “We are not asking for hand-outs. This is our own hard-earned money. In this past year, many lives have been lost to illness and depression because of this disaster," she said.

Lohia was able to make withdrawals of ₹1 lakh each from four accounts she and her family members hold in the bank, and has a few other savings and accounts that she is earning an interest income from, but it has not been enough to cover all her expenses. “We have cut down on our expenses drastically, including letting go of our household help. I have also had to borrow money from my brother to pay certain bills, and inform my RWA that I can’t pay maintenance fees till this is resolved," she said.

Like Lohia, people banking on one source of major income, whether it is from a bank deposit or from a debt scheme, are sure to find themselves in trouble. “Retired people might need to cut down their monthly expenses if they were depending on monthly withdrawals from any of the Franklin schemes," said Sen.

Double outgo

Abhijit Barua, 42, a system administrator, made the down payment for an apartment in Faridabad in 2018, but the project has since been stalled. “I am still paying my EMIs, but I don’t see the builder being able to deliver by the handover date," he said. According to Barua, the possession date had already been pushed back by the builder once before, but he continued making the payments in good faith, expecting the new date to be final. “Along with the lump sum amount of down payment, my payments add up to over ₹60 lakh, but I am still paying rent," he said.

The double outgo has taken a toll on Barua’s finances, especially since the pandemic hit. “We have had to cut down on our expenses significantly to keep paying the EMIs, even though my money is essentially stuck at this point," he said. Barua had chosen a builder of some repute in the area in order to ensure that delays and stalled projects didn’t become an issue, but he had not anticipated the labour and building material crisis that will follow the pandemic.

Exiting a project that has been stuck for a year or two may be an option, but it may attract penalties. In some cases, the builder may not even agree to pay back, in which case the buyer will have to approach the real estate regulatory authority or seek legal recourse. According to Anuj Puri, chairman, Anarock Property Consultants, whether it makes sense to exit a stalled project depends on many factors including the stage of the project, the reason why the project is stuck and the time period of the delay. “A homebuyer must try and exit a stuck project which is under a litigation issue. The legal hassles are far too time-consuming and tedious," he said.

Despite your best efforts, there is always a chance that an issue at the industry level may cause a ripple effect that impacts your investment. That is why it is important to keep a contingency fund ready and diversify your investments among different products.