Non-advised retail financial products are usually toxic

After almost 20 years of working in the personal finance space, my single most important learning is this: it is not possible for an average retail investor to buy financial products without advice. Shifting the burden of decision making and choice to the consumer of financial products hides the mala fide intent of a global financial industry, which is always steps ahead of regulators, never mind consumers. I’ve just been through a round of financial literacy workshops across the country and the sheer helplessness of the average consumer is palpable. It is manifested as anger, fear and an overall feeling of having been cheated.

Read more

 

Gold or land or equity? It is not ‘or’, it is ‘and’

Ask any group of people what gives the highest return and nine out of 10 will say: real estate. The 10th will name gold as the next best investment. Mention stocks or equity and the response is either hostile due to the stock market related scams (including the unpunished scam of unit-linked insurance plans) or fearful. Every time I’ve spoken to a group, I get the same response: a sure-thing with real estate and gold, and an overall feeling of mistrust with equity. Let’s unpack this a bit. Let’s look at return rates. I will do this in two parts. One, historical returns. If we begin with the Sensex at 100 in 1979 as a starting point for a meaningful comparison and look at returns across the market, real estate and gold, we get a positive return for all three. Investment in gold from 1980 to 2014 (I got gold prices in Indian rupees off gold.org) returned 11%. Investment in the Sensex returned 17% over the same period. Tracking real estate is tougher due to lack of data series and due to location issues. So I picked the village where buffaloes bathed turned boomtown of Gurgaon to see what the price change has been. Speaking to original inhabitants from the 1980s of what is now DLF City, I get rough rates of Rs.2 lakh investment turning into Rs.2 crore over 34 years, or an average annual rate of growth of 15%. Just to put it in context, I looked at Reserve Bank of India data and got an average annual return of 9% on a five-year fixed deposit (FD) across the same time period.

Read more

 

Corruption in low places

An early morning doorbell ring is usually not good news. This time it is Ram Bahadur, the maali, our super gardener who must be one of the few old-style maalis still left in the city. Instead of me, it is he who cries when monkeys smash through most of my pots to get to the cool mud during the burn of summer, (they spread the wet mud like a sheet and lounge around all day—I kid you not!). But today the normally reticent guy is vocal and obviously in great distress. He’s lost his identity papers—someone stole them from his bag on the cycle—and that includes his school leaving certificate (a piece of paper that you need to show that you are indeed alive and of a certain age). To get a duplicate will now force him to intersect with the “sarkar”. One can live peacefully in a bubble in India, but one intersection with a government office where you want something will leave you poorer, humiliated and harassed. I promise to help with the advertisement he has to release to announce his lost papers (what ancient regime do we live in?) before he can file an FIR. What the police will do for this favour is anybody’s guess. His voice and face tell me he knows what his next one month will be like.

Read more

 

It’s sweet 16 for my PPF account

I get an SMS alert. It tells me that a nicely fat number has dropped into my account this morning. This is the cheque I put in three days back. The cheque was given by the bank through which I had opened my public provident fund (PPF) account 16 years ago. (PPF is a 15-year account, but money comes back in the 16th year). I need the money to prepay a toxic home loan product that I find myself locked into (yes, the banks can cheat even the financially literate), or else I would have rolled over the money for another five years. But the process of liquidating a 15-year-old account in a product that has been my all-time favourite triggers a trip down the memory lane and why I opened the account.

Read more