Financial planning for both Mr Stock and Mr Bond

Expense Account, Mint

At the height of the economic and market boom, a friend on a defined benefit pensionable job in the government was being wooed by several firms in the financial sector. This was before the Pay Commission and he took home all of a quarter of a lakh each month. The move to the private sector would simply add a zero behind that amount. Plus perks, of course. His dilemma was this: his base level service years were not completed, making him ineligible for pension if he quit the government now. The private employer he was comfortable joining was unwilling to wait for the two years left in his service, but was willing to offer a joining bonus, that if invested, would make good a part of that pension foregone.

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Five concepts you need to understand while investing

Expense Account, Mint

No, this is not about what this column expects the new government to do for financial sector reform. It is assuming that these are going to be fast-tracked, and along with new products and services, consumers of financial products will bear the burden of too much choice. In his book The Paradox Of Choice, sociology professor Barry Schwartz links excessive choice to consumer misery. He shows how too many similar-looking options actually cause consumers to freeze and prefer status quo to taking any proactive decision. While in the US the number of mutual fund schemes outnumber listed stocks, India is getting there with at least 1,500 funds and investment-linked insurance plans. This number is set to balloon in the next five years as more firms line up at the Indian doorway to get a piece of the vast Indian financial products market.

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How much should you save?

Expense Account, Mint

I’ve learnt to treat questions that include soliciting stock tips and my prediction for the stock market as feeble male attempts to include me in their conversations at social dos. I’d actually much rather talk about dogs, kids and trade hummus recipes. Anyhow, the one question I do take seriously is one which goes like this: I have been investing, but how do I know I am doing enough? How much should I be saving, is there a magic number that I need to hit?

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Money is a choice, too

Seen No Smoking? Don’t, if you already haven’t. Probably one of the most disconcerting movies I’ve ever watched, the plot (or what I could make of it) is this: The rest of your life is a sum total of the choices you’ve made in your life till today—you just can’t escape yourself. That sort of responsibility is heavy.

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Is the new pension system really that cheap?

Expense Account, Mint

One of the reasons the new pension system (NPS) had got good previews before launch was due to the tiny costs the scheme carried. However, newspaper edits this week suggest that there is fine print to be looked at and that the product is not as cheap as touted.

The criticism also is that the product is elitist and does not work for a poor person who will invest the minimum Rs6,000 a year but will pay the same upfront cost as a person investing Rs1 lakh. Is there truth in this cost argument?

Any discussion on cost cannot be restricted to only one facet of the cost. A financial product carries at least three kinds of costs: You have to pay to get on the bus, that’s the entry load. You have to pay to ride the bus, that’s the annual recurring fund management and other annual administrative costs. And last, you pay to get off the bus, that’s the exit load.

 

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