As a kid I remember getting irritated whenever the old people would get together. Now they’ll start talking about how expensive everything is, I used to mutter. Back in those days, kids couldn’t utter aloud all the insidious little comments that were swimming around in their heads when adults were around. “Arrey, on a salary of twenty rupees you could run the house and then have something left over? That shawl mamijee wears, no? That cost a full five rupees. Now toh, you can’t buy it for five thousand only.” Everybody shakes their heads. “Tch tch. Zamana hi kharab hai (these are bad times).” As a kid I remember buying sweets for 5 paise and bus tickets cost 25 paise (and I’m on my way to irritating the life out of kids in the family). My daughter has never seen coins below one rupee. Her daughter will probably say the same for fifty bucks. The fall in purchasing power is the reason that we worry about meeting our expenses when we retire.
Most of you who read this column are now investing in the right way, using a systematic investment plan (SIP). But did you know that your dull, boring SIP is the result of more than 10 years of regulatory change? Most of you have also discarded the low-return endowment plans and now purchase a pure term plan to look after your life insurance needs. But did you know that you got to the right solution not because of regulatory change but despite it. I’ve been mapping the Indian personal finance industry for over 15 years and the behaviour of two regulators in industries that both manage household money has been fascinating. We now have the data to show the impact of regulatory change in the mutual fund and the life insurance industries on firms, sellers and households. I will relate the story through four tables.
Getting those real estate itchy fingers? Stock markets have been on a roll and the upswing in markets is usually a precursor of a jump in real estate prices as investors book profits and sink their money in land. The breathless expectations from a new real estate regulator, combined with an overall upswing in the mood of the economy, is making people begin sniffing the air for real estate deals one more time. One more time I write to caution real estate aspirants, specially those who cannot deal with the clunkyness of the asset, against jumping in. Of course, it still remains a really bad investment at current prices when you compare it to alternatives.
It was reported earlier this week in this newspaper that the insurance regulator is considering allowing portability in life insurance products. You can read the story here. I’m going to unpack what this means and whether it is possible to ‘port’ an insurance product. First, what is portability? When we think of a telecom service, then switching service providers from say, Airtel to Jio, is portability. Your number and basic services remain the same, but you switch your service provider. S.S. Mudra, deputy governor at the Reserve Bank of India (RBI), had suggested last year that bank account numbers become fully portable. You can read the story here. While bank account number portability is yet to happen, the logic is clear—our phone numbers and bank accounts are linked to multiple services we use. Often we stay with the service providers or banks out of inertia.
Why do the world’s most value-for-money people choose a pre-tax 4% return on the money that they leave in their savings deposits? It is the twin advantage of safety and liquidity that makes people love their savings deposits. But an aggressive mutual fund industry is using new products and processes to offer alternatives to these deposits, and is taking the battle for the share of the household savings right to the door of banks. Remember that mutual funds have product categories that can look after most of your money management needs—from liquid money to building and milking retirement funds. Last week, the Securities and Exchange Board of India (Sebi) announced a series of rule changes that make it safer and easier for investors to shift from a bank savings deposit to a liquid fund and allow people to use their e-wallets to invest in funds.
Are you thinking of investing in a debt fund? If data is any indicator, you may be already there because the assets under management of debt-oriented funds held by non-HNI (high net-worth individuals) retail investors have jumped by just over 40%, as on 31 March 2017, over the previous year to reach around Rs67,000 crore. As bank deposit interest rates fall, investors begin to look for better return options. This has coincided with rising awareness about the efficiency of the mutual fund vehicle to offer a full basket of products for instant to very long-term needs. Along with the awareness have come products and fintech solutions that now allow instant access to some parts of your money. Once on-boarded and linked to an online platform or app, mutual fund investing is a breeze.