“Today there is a major aspirational class in India that wants to invest for growth….According to the Association of Mutual Funds, the assets under management of the mutual fund industry in India in 2014 were around 10 lakh crores. In these eight years, by June 2022, it has increased by 250 percent to 35 lakh crore. That is, people want to invest. They are ready for it”. This is Prime Minister Narendra Modi speaking at the inauguration of the International Bullion Exchange in GIFT City, Gandhinagar on July 29, 2022. These are not words that India has ever seen coming from the political leadership. To the contrary there has been a deep-seated suspicion of markets in general and stock markets in particular. This discomfort with markets has led to decades of sub-optimal investment options for Indians wanting to keep savings ahead of inflation.
We’re trying to reconstruct the money life of the person who is suddenly not there to look after all the things that needed to be done. In this piece, I discussed the seven important people to contact as the first step and in this one I listed out the seven digital footprints to follow to rebuild the financial life.
Today I will list out most of the documents you need to find and possible locations for them. You need personal identifiers, papers that show ownership of assets and debts. Documents such as certificates of death, succession and legal heir are to be got from the government departments, but to begin on that, you need to have some documents that you can show to prove that you are indeed the legal heir or beneficiary.
Remember that this work is tedious enough, but this is just the beginning. Even for people with most of these in place, dealing with a multitude of government agencies and financial service providers is going to prove exhausting. Mentally prepare for a long haul on this money trail.
Personal Identifiers
You will need documents that prove the identity of the deceased and your own identity and relation with him or her. To be a legal heir you need to have a Will that gives you the assets. In the absence of that, you will need a legal heir certificate and a succession certificate. Google on how to get these – there are plenty of resources that take you through this process.
Will. The family financial planner or lawyer are the first two people who might have this document. It may also be in the locker in the bank or at home.
Passport. Most families have one location for all passports. Find it there.
Aadhaar card. The wallet or a box that has all the important cards is the usual place for this. It can also be downloaded from here.
Driving license. Wallet is the usual place for this.
Voter ID Card. Usually there is a box with all important cards.
PAN card. People either carry it in the wallet or keep it in a safe box.
Birth certificate. In the absence of a birth certificate, the class X mark sheet is used often to prove the date of birth.
Marriage certificate. Some people don’t register their marriages. If the spouse’s name is on the passport, then that works to establish relationship.
Any other document that establishes your status as an heir and beneficiary.
Tax and Bank
Tax filing papers. Usually there is a file with the various years tax returns. Find the papers there hopefully. The tax filing site too has a lot of this data. You will need to access it using the PAN number plus mobile OTP.
Bank statements. These will establish the inflow and outflow of money. You will get a fair idea of how much was getting saved and possibly where those savings were going. You will also find a list of the most important spends that need to continue.
Cheque book stubs. Other than the regular income that comes via a bank transfer, sometimes there can be credits that are deposited through a cheque. Look at the stubs to see who paid and for what.
Assets
Fixed deposit certificates. Some banks still issue physical FD certificates and others just give a digital copy.
Corporate deposit certificates. These should have certificates. These are investments made in company bonds.
Bonds. There could be government bonds or other tax saving bonds like 56 EC to offset profits of a previous real estate transaction. Some people buy them online now, so getting to the banker and broker will be crucial to find these bonds.
Post office deposit certificates. Good old fashioned post office deposits will have certificates. Usually stored in a safe box or look for a digital copy.
National Saving Certificates. Likewise, try and see if there are any certificates. Some banks offer online as well.
Provident Fund, gratuity and other dues from the place of work. Locate the UAN number to access the PF. Or the office accountant will help.
Public Provident Fund documents. Some banks still give physical certificates, others just give a digital copy and account statement.
Home ownership papers. This is a fat bunch of papers. Will be hard to miss.
National Pension Scheme (NPS) PRAN number. Both digital and physical documents should be there for the NPS account, if any.
Combined Account Statement for mutual funds. The R&T agents Karvy and Cams give a combined account statement of all the mutual funds held. The Association of Mutual Funds in India (AMFI) tells you how to access it.
Stock broker accounts. Mostly digital now, find clues on who is the service provider from emails and bank statements. It is crucial to find the assets listed with the broker account.
NSDL monthly statements. The National Securities Depository Ltd gives a monthly statement of the stocks, mutual funds, bonds, gold bonds owned by a person. Look for emails from NSDL.
Gold. The location of jewellery in the home is usually a shared piece of information with the close family members, but do look out for gold held through mutual funds and sovereign gold bonds.
Car and other vehicle papers. Find the RC, the pollution certificate and now the FAST tag information.
Insurances
Life. There might be a term plan. If you know about this, then it is crucial to find the policy because if you are the beneficiary, you will get the proceeds of the policy. There could be others like Ulips, endowment plans, money back plans and whole life policies. At this stage just collect the policy documents, we will figure out what to do with each later. The bank or agent should help.
Some offices too insure their employees. Find out from the office if there is such a policy.
Health. You might have already used the health cover, but it now important to rework the policy. Get hold of the agent who sold this policy.
Vehicle. This is an annual renewal. Find the insurance papers. Usually a copy is in the dashboard of the car’s glove compartment.
Home. If you have a home cover, that too will itemise the valuables that were insured. This too is an annual cover and will need to be updated.
Annuities. This is a regular income and if there is such a policy, you will need to find the document and begin the process of getting it to start paying.
Liabilities
Loan documents. Find out what you owe. This is important to keep the loan payments going or will help you to close the loans that you want to exit by prepaying them. Usually there is a home loan, a vehicle loan, gadget loans and personal loans. Find out from the credit rating agencies the list of all loans in his or her name. See more about this here.
Credit and debit cards. You will need to find the cards and then begin the process of cancelling them.
Where to look
Locating these documents will be easy or impossible depending on how organised the deceased was. Most people have a system they use to store their paperwork. The well organised have files neatly labelled stores in file managers or cupboards that too have lables. These kind of people put a label on a label maker! But these are rare. You will most probably need to look in a variety of places to collect all these documents. Look in:
Bank lockers. The location and number of the locker and code will be crucial to accessing the locker after the bank has done the legal formalities and allows you to access the locker.
Office. Check with the boss or assistant so that all personal files and documents from the office can be shipped to you. Some people keep documents in office where they are most likely to do the work of updating and maintaining.
Locker at home. The good old Godrej cupboards have a safe. I’m sure that is the first place you would have checked in any case.
Document cupboards at home. If there is a study, look there. If the dining room is used as the mini office, then search the cabinets in that room for files.
Some people maintain registers or notebooks where they document the financial details. You might strike lucky and find a list of passwords for various account in such a register.
We are still just collecting all the documents and papers. The work of putting them to work is still to be done. Next time I will write on how negotiate the few months post the death and build a plan for the future.
This is a series to help reconstruct the financial life of a person who is no more. While death never came with just old age, but the Wuhan virus has brought the fragility of life right into our homes. In this piece, I discussed the seven important people to contact as the first step of rebuilding the money life of a person who is not there to tell you what is where.
The next step is to use the deceased person’s digital exhaust to trace out some important details of their finances. Our digital footprint reveals a lot about who we are and what we do. Big tech platforms use this to direct advertising at us. You too can use the footprints to find some missing pieces of the money jigsaw you are trying to make.
Phone. One of the key devices to help you trace out the money profile of a person. Your first gate to unlock will be the phone password that locks the device. I am hoping that the password is something you either already know or can guess given the set of passwords a family tends to use. We all have a certain method in using passwords and plenty of couples share the mobile pins with each other. If the phone has a face or fingerprint lock, you will need some techie help to unlock the phone. There are resources on the web that deal with this, but are specific to the kind of phone, the version and the associated platforms used. So, yes, there might be a way to unlock, but no, I won’t go into it. You will need to get some techie in the extended family or friends to help with this.
What are we looking for? We are looking for phone numbers of the people mentioned in the earlier story on who to contact. Look in the ‘recently called’ list. Take an hour’s time and then search through the entire phone list and forward to yourself numbers that have anything to do with finances. Most people save numbers with the function or the contact details will have the name of the firm the person works for or runs. We are also looking into the photos and specifically for pictures of documents that the person might have saved. Some people save images of their important documents like PAN, Aadhar, passport, driving license and such like on their phones. You might even find images or PDFs of insurance policies, mutual fund account statements, bank account statements and other such documents on the phone itself. The deceased might be using an app to manage the budget and that too will give plenty of clues as to the regular outflows. You might see the premium for an insurance policy that you did not know about. You might see systematic investment plan (SIP) outflows on a monthly basis.
Computer. A desktop and or laptop is also an extremely useful device to unpack since it is a significant storehouse of the deceased person’s digital footprints. Again, I am hoping that the passwords are shared with you and you can access the computer. If not, get some techie or use google to figure out how to open a locked computer. Assuming that you are able to open the device, you are looking for documents scanned and stored. Documents such as PAN, Aadhar and other identifiers. Downloaded insurance policies – most car, home and life insurance policies are now sent in a digital form as well – are usually stored in the hard disk of the computer. Look for a folder with tax details. Another one might have bank details. There could be NSDL (depository) monthly statements on shares and mutual funds held. Property papers might have been scanned and stored. Some net worth and asset lists might be maintained. There may be an excel sheet or a word file with a list of regular payments that are due, such as rent, EMI, premiums, SIPs. Speak to the office assistant or boss for help with an office computer.
Tablets. Most people today have a multiple set of devices. Look for a tablet such as an Ipad or an android tablet. If the person preferred to use the tablet more than the laptop or desk top, you might find the details stored in this device.
Email. Unlocking the emails is another way to access the financial details of the person. Even if you cannot access the phone or computer, you can try and open the email if you know the password. The combination of a one-time password (OTP) along with an email address registered with service providers will give you access to most accounts.
Whatsapp (or Signal or Telegram – some messaging app) messages. Assuming that you have been able to unlock some device, now go through the messages. The messages to a financial service provider will give clues to what bank accounts, what assets and what liabilities the person had. Some people message themselves important updates and details on whatsapp instead of using the ‘notes’ features on phones and laptops.
Digi-locker. Few people will be using this cool new app (https://digilocker.gov.in) that aims to store all your original documents in one place. This is a government portal and app and some people are already using it to store documents. Again some combination of OTP plus email will be needed to unlock this app as well. The documents stored here are treated as originals.
Cloud. The deceased might have been using some kind of a cloud service such as Google Drive, iCloud, Dropbox or some other service. These help store files and data not just in the hard disk but in remote servers that can be configured so that all the devises can access the data. OTP, passwords and emails are again crucial keys to open this lock as well.
Often, most used sites and programmes are left open on laptops or office desk tops. If you are able to access these devices, then just keying in the name of the site might open it up for you. Children and young adults are usually good with technology, so if you are unable to do this yourself, enlist the help of trusted extended family members to help you out.
Next time, we will go on a physical search of places to search for files, documents and paperwork. This is a tough time. We all need to just belt up and keep going.
The calls for help are many. Somebody has lost a spouse. Somebody a parent. Somebody has lost a sibling or a close relative or friend. The healthcare battle being lost, we now need to begin on the wealth care front. The emotional issues will take a lifetime to work through, but the push of bills, EMIs, rent, school fees, groceries and suchlike expenses and dues is a clock that does not stop ticking.
Covid is leaving spouses, children and dependant parents suddenly having to deal with the absence of the people running the home both physically and financially. Even for people with Wills, those left behind may not know the details of all the assets and liabilities, of all the insurances and financial relationships in place. Trying to piece together a financial picture of the person gone is not an easy task even for those who have been fairly organised.
I am writing a series that will help put together this financial identity. Think of it as a reconstruction of the financial life of the person gone and we are looking for clues, resources and documents to put the pieces together. I will begin with identifying the people who could help. These will be either service providers or in the know of the financial map of the person who can no longer pull out the file to point out the details. Death is so final. Only when you experience it close hand can you actually understand the finality. We are all devastated by our collective loss. Here is hoping that at least the financial picture can be better seen with these resources.
So, who should be your first port of call?
Financial Planner. If you are lucky, then you have been working with a financial planner who has full oversight of your entire money life. That planner would have ensured that the nominations were in place and the Wills were written, signed and witnessed. The planner is your gateway to financial stability. But since we still hesitate to engage fee-for full service financial planners and there are very few who would be in this place.
CA. The second person you call is the family’s chartered accountant. The CA or whoever files the taxes again has oversight over most of the financial pieces of a person’s life. The CA will have information on the income, expenses, savings, investments toward tax saving, bank accounts, documents like PAN, Aadhaar and others. The CA may also know of other financial relationships and assets and could also have access to documents.
Boss. The third call is to the office and the person who the deceased would report to is a good person to begin with. The boss can then ask the office HR and accounts to help with information and documents they might have. A personal assistant, secretary will also have access to many pieces of the money puzzle. Details such as monthly income, bonus or commissions and insurance if any can be got from the office. Also details of loans if any taken. A good company will waive the loan given the pandemic.
Bank relationship manager. Next, speak with the bank relationship manager if you know who he or she is. For the bank to officially talk to you, you will need to have documents such as the death certificate, Will, legal heir certificate and/or succession certificate in place. The bank will be able to give you statements that will provide clues to the inflows and outflows.
Agents and brokers. Then figure out who the financial agents the person has been working with. Typically there will be insurance agents, mutual fund agents, stock brokers, real estate brokers. You may remember from shared conversations the identity of some of these service providers and can contact them to figure out what the asset picture looks like. They will be able to give details of products held, account statements and help with the filing of claims.
Lawyer. You should also speak to the family lawyer if any. A lawyer might have access to some documents, some paperwork and might have clues to what assets or liabilities the deceased had.
Friends and colleagues. There is usually two or three confidants of a person who they discuss money matters with. You may be familiar with such a relative or close family friend who was part of the money conversation of the person who is not there anymore. They will give direction to your search for assets and the location of the paperwork and people you might have missed knowing in the list above.
Keep a diary in which you take notes because the final picture will take a long time to build. Remember, at this stage we are just putting down a list of people to contact. What we want from them and how we go about it is in the next few posts. Next I will list out the digital exhaust that an average person emits and how you can use it to build the money jigsaw.
The Franklin Templeton (FT) story gets worse every few weeks. Reena Zachariah reports in The Economic Times that the fund house is trying to make a domestic capital market regulatory issue into a foreign policy issue for India. She reports that the global and Indian senior management of the fund house has reached out to the India’s US Ambassador to complain about India’s capital market regulator Sebi. The trigger, says the newspaper report, seems to be the show-cause notice to FT staff who pulled money out of the distressed schemes ahead of the freeze in April 2020 and a disgorgement bill of Rs 440 crore in management fees to be clawed back. The threat of exit, even if made as an arm-twist move, by FT brass has caused a fund house risk (the risk of the fund house shutting down or exiting the business) for investors.
Quick recap: In April 2020 FT froze six debt funds due to corona induced liquidity issues. In my opinion then, this was a good move since large investors have earlier exited distressed debt schemes due to better access to information and advice, leaving the pure retail investor holding the worst paper in the portfolio. By freezing the schemes, both large and small investors were on the same page, and as the money would be recovered, both would get it back pro rata. The case then went to court and a good summary of events can be read in this report by Manoj Nagpal.
But since then several worms have been pulled out of the can. But what has moved the story from a pure mis-managed scheme and true-to-label issues to a very serious regulatory issue and an even more serious foreign policy issue, are two things. One, In a superb story Jayshree P Upadhyay wrote how the fund house allowed senior insiders and their families to exit the distressed schemes ahead of the scheme freeze. This now becomes a possible insider trading issue that has serious consequences for the fund house. Sebi, according to newspaper reports, has sent a show cause notice to the fund house. This has triggered the invocation of the Indian ambassador to the US by the management leaders of FT to complain about Sebi and to threaten a closure of business in India. This makes it a foreign policy issue.
Two, by making it a foreign policy issue, FT has crossed another line. According to the Economic Times story cited above, the complaint to the Indian US Ambassador is around the disgorgement of fees for the six mismanaged schemes, plus fines and some other regulatory strictures. The letter cited by the paper reads more like a threat. It says that FT is one of the few foreign owned fund houses in India that has not decided to cease operations (possibly referring to Fidelity’s exit in 2012) and were it to pull out there would be job losses. The unsaid is that there would be a loss of face for India globally.
When Fidelity exited India in 2012 the commentary was that tighter Sebi rules around charges and disclosures were making the industry and business unviable. Instead of looking at Fidelity’s high costs, the narrative was on Sebi being a very strict regulator. FT is possibly thinking of similar narrative today of the regulator getting blamed for taking action on insider trading and for tighter regulation. But what FT needs to remember is that not only did the industry grow exponentially to about 5 times the 2012 AUM, but the market regulator has increased the pace and depth of regulation to which the industry is subject to make funds investor friendly for no loss of pace of growth of the industry. Also, there is a hungry breed of domestic asset managers who are in the process of applying for or readying the mutual fund offerings. A new wave of passive fund managers should be en-route as well. By trying to step over Sebi’s head and hoping to make it a bi-lateral foreign policy issue, FT has showed very poor judgement. Worse, it now makes investors in FT subject to a fund house risk.
What happens if FT carries out its implicit threat and actually exits India? Nothing much really for the industry, but for investors there is a fund house risk due to the threat of exit. According to Amfi data, FT is the 11th largest out of 43 asset management companies (AMCs), with around 3% of the assets under management of the industry. If FT decides to sell, it has two options. One, it can shut shop and return the money at current NAV to investors. Remember that the mutual fund industry in India is set up with the money held in a trust in the name of retail investors. It does not belong to the AMC – they cannot run away with it. Two, FT can sell the AMC to another sponsor. Also remember that the AMC is just a fee-for service provider whose job is to manage money. Another sponsor can buy out the AMC business from FT. Given Sebi’s regulations on one scheme per category, it would not make sense for another large AMC to buy FT schemes since they all have their own categories filled and will have to merge these schemes. It would make sense for a new sponsor (domestic or foreign) wanting to enter the business to buy the AMC. Maybe we’ll see Fidelity coming back. Or maybe one of India’s largest business houses will sniff this as an opportunity to get size and scale in the Indian mutual fund market.
But for investors in FT schemes, there is now, what is called, a fund house risk. This is the risk of the fund house exiting the business and either returning investors’ money or finding a buyer. For investors this would mean taking a call to stay with the fund house and wait for the new buyer or to exit. Exit means a reinvestment risk and a tax impact for any capital gains. It is not certain that this is what FT will do, but by threatening to quit and taking the battle out of the Indian regulatory jurisdiction to the US, the fund house just moved the uncertainty level up several notches for the Indian investors.
Monika Halan is India’s trusted personal finance writer, speaker and author who helps families get their money decisions right.
Retail investors are the last to know when things go wrong with their money. This is especially true of difficult-to-value-and-trade (in India) financial products such as bonds. The story gets even more complicated on how to treat bonds that behave like (or worse than) equity – for example AT1 bonds. AT1 bonds are issued by banks to shore up core capital base to meet BASEL III norms. These are unsecured, perpetual, high-risk bonds. Banks can skip paying interest on these bonds if their capital ratios fall below certain threshold level. These bonds are junior to equity and get extinguished in case of a bank failing. In English this means that these bonds need not pay interest and need not return capital if the bank finances are under stress. Retail investors into Yes Bank AT1 bonds lost their entire savings when they bought these bonds when they were told by the bank managers that these were FDs with a higher interest.
Mutual funds also have AT1 bonds in their debt funds, introducing risk worse than equity into products that retail investors consider safe. These risks were marked out in this story in 2016. One estimate says that there were 25 schemes by end June 2020 with between 15% to 60% of their assets in these risky bonds. That’s a lot of very high-risk bonds in a debt portfolio!
A March 10, 2021 circular issued by Sebi lays out the rules of the game so that worse than equity risk is not introduced into debt funds. The circular says:
No mutual fund will own more than 10% of these bonds issued by a single issuer across all its schemes.
Not more than 10% of a scheme to be invested in these bonds.
And not more than 5% of a scheme in the bonds of a single issuer.
If a scheme and fund house already have investments that are higher than these limits, these will be grandfathered – the fund need not sell them, but not buy more.
For retail investors this is important because Sebi is putting limits on how much of these very risky bonds a fund house can buy. And for funds that are already holding more bonds than now allowed, Sebi is giving a leeway of ‘grandfathering’ their holdings. They are not being forced to sell, but cannot buy more till they fall below the new regulatory thresholds.
A second part of the circular says that:
The tenor of the bonds will be considered as 100 years since they are, well, perpetual.
Closed end schemes will not invest in perpetual bonds, because they will not have a tenor of a 100 years
Sebi’s goal seems to be to protect investors into debt funds from finding too much risk in their portfolios. Some debt funds were found to be treating these long-term bonds as short term by taking the put and call dates as the tenor of the bond. Put and call dates are those dates on which the bank can call back these bonds and pay investors back or investors can sell these bonds back on a ‘put option’ date. See this from an investor point of view, you buy a short-term debt fund to have certainty of money and a return that is slightly higher than a bank deposit. But to include highly risky, long-tenure bonds in the portfolio of short term bonds, as Franklin Templeton did, makes investors open to risks they did not want to take. Also valuing a perpetual bond on the call/put date is a real sleight of hand and a very sharp practice by the fund houses doing this.
This action by Sebi is in continuation to its October 2020 circular that put in place rules so that retail investors cannot buy these bonds directly. A minimum ticket size of Rs 1 crore, a minimum lot size of Rs 1 crore and restricting sales to only institutional buyers were all aimed to preventing a Yes Bank like mis-selling episode. Surprisingly, action was taken by the capital market regulator to what is a banking regulator problem. RBI took the view that retail investors were disclosed the risk of these bonds by Yes Bank and were not mis-sold. This paper (I am one of the authors) marks out how better disclosure would have prevented most of these sharp sales by Yes Bank officials.
But things unraveled on 12 March 2021 when the Department of Financial Services, Ministry of Finance overruled Sebi and in a memorandum as reported in the newspapers, told Sebi to withdraw the valuation rule as it would lead to market disruption. Next, the industry body Association of Mutual Funds in India (Amfi) made a press statement standing with Sebi! Amfi, actually has no option but to do this since these issues have been debated and discussed for months before the circular was issued two days back. The issue of AT1 bonds in mutual fund portfolios and how to value them has been a subject of much discussion within Sebi and with the mutual fund advisory committee (I am a member on this committee) over the past few months.
The Ministry of Finance has done two things wrong. One, it has not seen the retail investor interest in the action of Sebi and seems to be responding to the banking lobby. Two, by undermining the regulator in this manner it is setting a precedent for others to follow by messaging Delhi directly rather than work with sector regulators. It would have been better semantics had the government resolved the issue rather than take it public in this manner. Very unfortunate for retail mutual fund investors in particular and regulatory autonomy in India in general. The finance minister Nirmala Sitharaman needs to set this right.
In March 2020 we understood risk a little better in both equity and debt mutual funds. Better returns have been one of the reasons that investors released the safety belt of the fixed deposit to ride market-linked returns in both equity and debt. But higher returns and liquidity come with a greater risk. Investors need to be able to evaluate risk better before they fully let go of the low post-tax return FDs or traditional bundled life insurance policies.
There are two ways to take risk into consideration when investing – one through a fee-only financial planner who does the risk analysis for you and chooses the products to build a portfolio that suits your ability to handle the risk. The other way is for you to evaluate the risk and return parameters and build your own portfolio.
Having an easy way to understand risk became reality on 1 January, 2021 when Sebi’s new rules on marking and updating risk in mutual funds became live through a new version of the old risk-o-meter. This risk-o-meter is an upgrade over the previous one in three ways.
One, there are now six categories of risk instead of five. Risk metrics go from low to very high. The last one is a new category to indicate schemes where investors money is exposed to what is extreme risk for a retail investor.
Two, the way that risk itself is calculated now has a proper methodology. Debt funds will be judged on three metrics of liquidity, credit risk and interest rate risk. You can watch this video to understand these risks better. Or read this. And this.The final score will be a mix of the risk of these three attributes.
Equity risk will be mapped on volatility, market cap and impact cost. For example, the risk of a sharp fall in value is higher for a small cap stock than a large cap stock. The new risk-o-meter will take the holdings of such stocks in the portfolio into account.
Three, the risk score will be disclosed by the 10th of each month on the individual fund and AMFI website. Then every year on 31 March, the fund will disclose how many times the risk metric changed over the year. If you find your fund’s risk rating changing often, it will be a red flag to see why this is happening.
I’ll tell you how I will use the risk-o-meter. I want my debt funds to be fully safe – that’s why I moved out of FDs to debt – for higher returns, flexibility along with low risk. I do not want to expose my debt funds to needless risk and will choose the very low and low risk funds only. The risk-o-meter will mark risk clearly in debt funds that take very high risk on buying lower quality bonds or those that have a large liquidity risk (these two are related since bond markets for non-triple A bonds are not very deep in India).
In equity, the risk metrics will be mostly high and very high for most schemes and I will need to do further work to see that the portfolio has slices of large, mid and small cap and foreign funds. I will look at the overall portfolio risk that I carry to see if this is in tune with how I see my own ability to suffer a capital loss.
Just looking at the risk-o-meter will not be enough to judge whether or not you should invest in a scheme, but gives you one more tool to evaluate risk. If you work with a planner, ask her to indicate the portfolio risk basis the risk-o-meter to understand whether the overall portfolio risk metric is in line with what you think it should be.
Sebi has been the most proactive regulator in making disclosures meaningful for investors. Do engage with the risk-o-meter to understand your own schemes and portfolio. The markets are on an happy upward sprint today, but always remember that March 2020 week when your equity lost 30% of its value and six debt funds got frozen. That is the risk that you need to remember when you are investing in a bull market.
Monika Halan writes on household finance, policy and regulation. She tweets at @monikahalan.
There are times when markets seem fully on their own trip and in no mood to look at what is happening today, as they anticipate a golden tomorrow. As the market hits new highs every day, up an unbelievable 75% from the March 2020 lows, investors are asking the question—how high will markets go and is this rally sustainable?
Other than global liquidity, some reasons for markets being happy are related to the better-than-expected recovery of the Indian economy. The Reserve Bank of India (RBI) has projected a contraction of 7.5% in financial year 2010-21, better than the minus 9.5% projected earlier. The central bank estimates that the first quarter of the next financial year will see a positive growth of 21.9%. The market is also blending in the argument that this recovery is possibly being built on a different base than earlier.
The nephew has just begun to earn. The euphoria of the first salary. The joy of living at home and seeing almost the entire money sit warmly in the bank account. Checking every five minutes to see that indeed the balance reads what it did five minutes ago. But he is Gen Z and is eager to do more with his money than his elders were at his age. He’s seen his aunt all over social media. He’s seen her book at airports. He’s heard some good stuff about making your money work for you. So, he comes calling for advice. People in the financial advisory sector will understand what a moment this is—your own extended family is the absolute last to take you seriously! Evidence of this is in the investments he’s already made, starting SIPs three months ago in a few funds, taking advice from somebody he was referred to.
These are good funds, but there are already two problems. One, the funds don’t have a story to tell. They are just good funds that some well-wisher put him into, they are not aimed at solving any of his concerns. Two, he is using a platform that only gives the option of a regular plan. Nephew is getting his advice for free and is then paying the platform trail commissions for the rest of his life on a growing portfolio for simply being the shop front that vends.
The closer you examine the financial sector, the more you get to believe that parts of the industry believe that if there is a way to do something wrong, why do it the right way? Not for all the firms in the market, but a few aggressive ones. And these cause regulators to go on tightening rules that finally hurt the market as the compliance costs and complexity keeps growing. The first 10 days of October saw the market regulator in an overdrive to push through long-pending reform that make the mutual fund product safe for retail investors. The speed could have some connection with the date of whole-time member Madhabi Puri Buch’s term completion coming closer, though she recently got a one-year extension. Buch has been a prime driver of change in the last couple of years and has also energized the mutual fund department into a data-crunching, evidence-building and change-enforcing machine. These are all good things for investors, of course. Three changes and what they mean for you.
Monika Halan's blog 