How should we share expenses? Should we share bank accounts? This is a question from a young 20-something millennial who has come to interview me for a woman-focused website. She’s about to get married and is wondering how to deal with marriage and money. Some stories her friends have told her worry her no end. How did you do it, she wanted to know. There was no concept of his or hers, we just pooled everything and spent as little as possible, I say. But I think the lessons from our lives of 25-30 years ago will have little resonance for today’s young. They are starting off in a better place in many ways. For most of my generation there was no question of my money or your money—it was the family’s money. In many cases, it was the joint family money. But for the Indian urban mass-affluent millennial, the deal is now very different. They rightly should think about and sort out money matters before they get married.
A call from a political party scare-mongered me into checking if my name had indeed been struck off the election list. A visit to the Election Commission site for Delhi told me that all it needed was an SMS to check if my name is on the list—I message at 7738299899, write EPIC space my voter ID number. Thirty seconds later, I get a confirmation that my name is there and it gives me the booth address where I will vote.
After the sheer delight at this super smooth process, I remember that I had got my Provident Fund (PF) balance on SMS too. Also, the passport and visa processes is mostly all automated and keeps us well-informed about the progress of the process. So I began to count what else works in India. We know and are vocally critical about what does not. So what works? Well, the metro network where it exists, as it does in Delhi, is superb. Do we hear of strikes or regular breakdowns in the cities in India they operate in? We don’t. Travel to Europe and see what breakdown of such services means. France especially is constantly on strike.
As a new financial year begins, I take a walk down memory lane and remember what I did more than two decades ago and what I would do differently if I could revisit my younger self today. It was the sixth year of my career and the latest hike just made the cut to begin paying taxes. I remember the joy of the increased salary getting deflated like a balloon on hearing that taxes will actually take away most of the hike. I opened my Public Provident Fund (PPF) account that year and then 16 years later collecting the corpus. You can read about that story here.
As first income earners, our first investments are usually linked to saving taxes and making it to the Section 80C limit. Several years pass for most people before the fact sinks in that this exercise is to be done every year. Year after year. The March-end rush to look for an investment to hit your money with is actually counterproductive. It benefits those selling products with high commissions because they are waiting for people who leave it to the last few days of the tax-saving deadline, to reel in with high-cost products with limited benefits. One of the most common problems in portfolios of middle-aged Indian middle class people is the kachra of multiple life insurance policies. Each year the agents will come and sell you something new and by the time you are 40, you have 10-20 policies. These people failed to see long term, looked at each year as a single tax-saving opportunity and did not look at their long earning years as a continuum.
I am signing copies of my book in Mumbai. The store manager and I are sitting in an alcove and doing the signing ceremony, where he hands me the book and I sign while he cracks open the next one before handing it over. Two native European (for want of a better term in trying not to say “white”) customers are watching from the other end of the shop and begin taking pictures of this book gig. We get chatting and I learn that they are colleagues from a North European country and are in Mumbai as consultants to some infrastructure project. Three minutes into a conversation with a stranger, an Indian in Mumbai, and they are shaking their heads and tut-tutting over the Indian bureaucracy and general state of things. Back from a longish visit to their part of the world and having seen their super slothful bureaucracy, weird processes and long waiting periods for service, I am in no mood to hear this. I retort. Maybe a little too loudly. Or a little too harshly. They seem to melt away into the interior of the shop. Then I notice choking noises coming from my neighbour, the book store manager. He saw the exchange and my pushback, and then just cracked up. He was recovering, he said, from an episode where a British guest of an author made racially degrading comments because one book was not in the store, but the Indian author just stood by and allowed the colonial rant to continue.
The manager does not come from that closed club of elite Indians who boast of correct English pronunciation, the right accent, similar higher education institutions, the correct home address, a common reading list, non-Bollywood movies, similar music playlists and foreign brands, but is a newly emerged middle-class Indian.
The dust has settled for the moment on the question of whether retail investors should exit debt funds. The answer is no, they should not because in terms of flexibility and post-tax returns they do better than fixed deposits. But, both the regulator and mutual funds need to make changes that identify clearly risks investors may not know they carry. Debt funds are far more difficult to understand than equity, and unless the risk in these funds is clearly marked out, retail investors will hesitate to cross over from fixed deposits to debt funds. Debt funds are used more by firms than retail investors. Firms own two-thirds of the debt funds, while retail investors less than a tenth. Compare this with equity, where retail investors own almost half the assets. Corporate treasuries are constantly looking for that extra return from debt funds and choose those AMCs that bargain down costs and offer an extra return kicker. But higher return comes with higher risk.
The Infrastructure Leasing and Financial Services (IL&FS) contagion is spreading. After mutual funds and non-banking financial companies (NBFCs), it is the turn of the exempt pension funds to be worried about their investment in bonds from the beleaguered institution. The story is: as non-performing asset-laden banks dried up lending to firms, these companies turned to other sources of money as a firm needs working capital to keep the wheels of business turning. Money comes from two sources—extra funds that other firms have and household savings. Institutions such as banks, mutual funds, insurance firms, pension funds, and NBFCs act as intermediaries between households, who are the lenders, and firms who are borrowers. In the IL&FS case, there are bonds that have not kept to the interest payment schedule and were, thus, classified as below investment-grade by credit rating firms. Once that happened, the exposure to such bonds held by mutual funds came to light. Next came the exposure of NBFCs to these bonds.
The Reserve Bank of India has cut the benchmark policy rate by 25 basis points (one basis point is one-hundredth of a percentage point) in line with the expectations of the market and economists. Should an average household be happy or sad? An average household catches cues from newspaper headlines and worries when the central bank holds interest rates high for very long without really knowing why. But often the interest of the household is different from that of the corporate sector or banks. This is how it works and why we don’t need to celebrate a rate cut just yet.