Ring-Fence Your Money

Investments in shares, corporate deposits, banks et al. can be risky in these times if caution is not exercised

- Vidya Bala

If you thought debt funds were a bad idea earlier this year, then the DHFL saga in June 2019 would have given you a shock about corporate deposits. If you then consoled yourself saying there are still banks, the PMC Bank episode would have broken that thin confidence left.

After the PMC Bank episode, a friend of mine mocked that even equities look safer than banks as they can at least be liquidated any time. But he said it too soon as the plight of the risk-takers in the equity world just got worse. For no fault of theirs, equity investors who had a broking account with Karvy Broking are now left wondering if they indeed hold all the shares they actually own.

Did you know?

Who would have thought a marquee lender of home loans like DHFL, that too, several decades old (don’t tell me you don’t trust vintage), would have reached the endgame, going into bankruptcy? Did you know that NBFCs gave loans to you for a longer time frame (like home loans) but borrowed money for shorter time frames from large institutions? Did you know this can lead to what is called asset-liability mismatch and can spell doom when the money tap from such institutions suddenly run dry?

And the NBFC can become bankrupt when it is unable pay back its shorter-term borrowings because there is no fresh money (à la Ponzi)?