All carrot and no stick makes the market an unsafe place

What role do incentives play in directing the flow of financial products into household portfolios? One way to answer this question is to look at data on retail financial products that have seen incentives change over the past 10 years and look at the direction of the flow of money. We can do this for two sets of investment products—pure asset management products such as mutual funds, and insurance-embedded investment products in the form of life insurance policies. There are now several data points that we can map given that privatization in mutual funds is more than 20 years old and that in insurance is 15 years old, and there have been regulatory changes in incentive structures in both products over the past decade.

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In search of rule of law. But who will make the new laws?

An average middle class family in an Indian metro runs its own mini infrastructure to maintain the bubble created to run mass affluent lives. To get clean water we use reverse osmosis machines or trust that the bottles of branded water that we stick upside down on a water dispenser are actually not just tap water. We run inverters for power back-up. We don’t like the government schools so we send our kids to private schools. We don’t trust the government medical services so we use the private ones. Public transport is yet not fully connecting all the dots so we have our own cars. We can safely add at least 10-15% to our monthly budgets as maintenance cost for the bubble existence.

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Consumer protection draft will need a DNA change in Irda

The impact of the Financial Sector Legislative Reforms Commission (FSLRC) report is already visible in the rush by regulators to put in place consumer protection measures. The Reserve Bank of India’s Charter of Customer Rights (http://goo.gl/ISKD68 ) was released on 3 December 2014, and the Insurance Regualtory and Development Authority of India’s draft Protection of Policyholders’ Interests (PPI) on 26 December. Comments on the latter will be accepted till 19 January at http://goo.gl/dVOIGL.

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Your money in 2015—the two-step way to financial health

I recently learnt a very important lesson in goal-setting and habit-forming from a medical doctor. A persistent bad back has me visiting the orthopedics more than I like. They all say the same thing—regular exercise is your panacea. Not marathon running but just a simple, regular workout. I find that I begin well enough, but two months later regress into inaction. Travel, the big destroyer of routines, is the usual excuse for not finding the 30-40 minutes to do what is needed. Then this one guy sits me down and tells me: just do these three exercises. Do them twice a day. Don’t skip. Don’t do more if you have no time. Don’t do three sets of 10 each if you don’t have time. Do each just once. But do them. I hear him. And start. That’s it. The goal became smaller. Much more manageable, and one that did not require a full 30-40 minute time slot in the morning. I find that when one set is done, there is always space to do one more. And when three exercises are done there is always the space to do 10 more.

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