Post-death Money Trail: 7 digital exhausts to examine

How to retrace the digital footprints of the deceased

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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.

Post-death Money Trail: 7 people who can help.

The rebuilding of a financial picture of the person who is no more is key to getting back on your financial feet

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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.

India Development Debate: Covid and Health Insurance. ET Now

With health insurance becoming more important than ever amidst the harsh second wave of covid-19, data from states across the country suggests that only 51% of the covid-19 claims received from the beginning of the pandemic have been settled. Tamanna Inamdar breaks down how to make your health insurance policy work for you on the India Development Debate tonight with Monika Halan, Author, Let’s Talk Money, Tarun Mathur, Co-Founder, Policybazaar.com and Naval Goel, CEO & Founder, PolicyX.com

See the show here.

Read the story here.

https://www.timesnownews.com/business-economy/companies/article/insured-but-still-left-high-and-dry-customers-caught-between-insurance-firms-and-hospitals-on-covid-treatment/761708

On the India Development Debate, I spoke about the fact that insurance firms are not paying covid claims in full. The problem is only half with insurance contracts and firms. The other half has to do with hospitals padding costs. @TamannaInamdar@ETNOWlive

The problem with the insurance contracts are that they are mostly one-sided with the individual having very little bargaining power. Companies can refuse to pay or deduct the payout by interpreting the policy provisions in their own way. This is market failure. When there is market failure government needs to intervene to put down road rules. Insurance regulator needs an upgrade – that’s an easier part. India needs a regulator for hospitals urgently.

See the show here: India Development Debate https://www.timesnownews.com/videos/et-now/shows/deep-dive-covid-and-health-insurance-india-development-debate/97960

COVID-19 insurance complexity: Good time for regulator to set things right, says Monika Halan. CNBC

Insurance companies are in focus as the Insurance Regulatory and Development Authority of India (IRDAI) has received complaints about COVID policies not being offered and renewed. Atul Sahai, CMD of the New India Assurance Company and Monika Halan, Author of Let’s Talk Money shared their views.

“As far as New India Assurance is concerned, I don’t see this happening. This could be the approach adopted by some of the companies but in the wake of COVID, no new guidelines have been issued as far as we are concerned,” said Sahai.

“The need for health insurance has suddenly increased for most people. The new insurance buyer has got afraid that something may happen and is now running to buy insurance. Globally, insurance companies are struggling to understand this risk and to price this into premiums. So, different companies approach the cooling-off period differently. COVID-19 pandemic is a new event and everyone is struggling to find their balance with it and people seeking health insurance cover for the first time post COVID are in for a little bit of a rough ride unfortunately,” Halan added.

“This is a great time for the government and the regulator to set things right in terms of insurance,” Halan mentioned.

According to Halan, higher loading is expected for the new policy entrants.

“The companies will have to probably increase the premium for the entire age bucket. The price rise will be across the board and not specific to a person,” she mentioned.

Incurred Claim Ratio (ICR) is used to gauge whether this market is fair or not. The number is obtained by total claims paid divided by the total premium.

While explaining the current market condition, Halan shared, “If the net number is at 100 percent, then we are seeing a fair marketplace where after profit and cost, insurance companies are neutral.”

“According to data, the private insurance companies’ ICR is 53 percent, the standalone insurance companies’ number is 56 percent, and the PSUs are 92 percent, which means they are doing well. I think it is a complete regulatory failure because you are not being able to ensure that there is no gouging of the customer,” she further mentioned.

“We are not going to increase the premium till we tide over this crisis,” Sahai shared.

Watch: https://www.cnbctv18.com/personal-finance/covid-19-insurance-complexity-good-time-for-regulator-to-set-things-right-says-monika-halan-9353111.htm

E-Baithak – ‘Personal Finance Q&A with Monika Halan’ Vittashala SRCC

“Financial freedom is available to those who learn about it and work for it.” – Robert Kiyosaki Coronavirus pandemic has made us realize true importance of managing our own finances. In times like these when people are losing jobs, experiencing salary cuts, businesses suffering due to country wide lockdowns etc. we can understand why knowing about concepts like Emergency Funds is crucial. Vittshala, the financial literacy cell SRCC had the privilege to have ‘Monika Halan’ ma’am with us for E-Baithak- ‘Personal Finance Q&A with Monika Halan’ where she answered our queries and gave her insights in the field of personal finance. Monika Halan is a best selling author – “Let’s Talk Money”, adjunct Professor at Indian Institute of Corporate Affairs, finance journalist a speaker and a writer on financial literacy, regulation, inclusion and consumer issues in retail finance.

Sebi (not RBI) finds Yes Bank guilty of mis-selling AT1 Bonds to retail investors

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Mis-selling by banks has been flagged, caught and proven multiple times in the past decade, but nothing other than half-hearted circulars have emerged from the Reserve Bank of India (RBI). For a regulator, that is also the central bank for a $3 trillion economy, busy with large issues like monetary policy and government debt, the consumer protection department is where staff is sent to be sidelined.

When the Yes Bank AT1 Bonds were extinguished, retail investors who had been sold these as FDs with a higher rate of interest, had thought that the RBI will do something about it and protect their interest. RBI, according to news reports, took the view that the risks were explained and there was no mis-selling. Investors wrote to Sebi as well and some of them have gone to court over being mis-sold. Curiously, it is the capital market regulator that has come to the aid of retail investors. Sebi took the complaints seriously, did a full investigation and found Yes Bank and three of its officials guilty of mis-selling in a 12 April 2021 order. It has fined Yes Bank Rs 25 crore, and Vivek Kanwar (managing director of the private wealth management team) Rs 1 crore. His team members Ashish Nasa and Jasjit Singh Banga have been fined Rs 50 lakh each. The case against Rana Kapoor will be taken on a parallel track since he is already in jail and unable to join the investigation fully.

Sebi found the following: 

1.  Yes Bank showcased the bond as a ‘Super FD’ and ‘as safe as FD’
2. The term sheet was not shared with all the investors
3. No sign off was taken from investors on their understanding of the features and risks of the product
4. Risk profiling of customers was not done, specially those who were more than 70/80/90 years of age

• In the ‘verbal pitch’ shared by the private wealth management team with the Relationship Managers, the AT1 bonds were compared with fixed deposits on rate differential only, but omitted the risk differentials
• There was a push from the MD & CEO of Yes Bank to down sell the AT1 bonds which led the private wealth management team to recklessly sell the bonds to individual investors
• 97% of the 1,311 individual investors who were sold these bonds were existing customers of Yes Bank
• 277 of these closed their FDs prematurely to invest in these bonds
• Yes Bank and its officials had a fiduciary responsibility towards their customers and that was broken by selling them high risk bonds without explaining the full risk
• Yes Bank did not have a system in place to ensure that a term sheet would be shared with retail investors nor was there any provision for taking a confirmation from investors with respect to their understanding of the risks

Policymakers, regulators and others working the space of consumer protection along with financialisation of Indian household savings must read the entire 61-page order carefully to see how an investigation must be done when dealing with disaggregated retail investors who do not have the ability to fight large corporations. In fact, I wrote a paper along with the team at Dvara Research that found retail investors were wary of buying AT1 bonds if the risk factors were clearly marked out. It seems that even this basic hygiene of just writing down the risk in the same manner that the returns were marked, was missing in the Yes Bank case.

Sebi has used RBI’s own regulations to find that Yes Bank was guilty of mis-selling. The order says that while initially RBI only allowed AT1 bonds to be sold to institutions, in a September 2014 order, it allowed them to be sold to retail as well, but with disclosures on the risks that such bonds carry. A specific sign off was required from retail investors saying that they understood the risks. RBI rules mandate that “all the publicity material, application form and other communication with the investor should clearly state in bold letters (with font size 14) how a subordinated bond is different from fixed deposit, highlighting that it is not covered by deposit insurance.” In addition, Sebi has used its own powers under the Sebi Act and under the Prevention of Fraudulent and Unfair Trade Practices Regulations and the fact that Sebi has oversight of listed bonds to carry out the investigation and pass this order.

The Sebi order has several non-linear take-aways. One, the naming of specific wealth managers and finding them guilty, rather than penalizing the lower staff should worry bank boards and managements that the long hand of Sebi can now reach them under the various regulations in place. I have always maintained that catching one junior bank employee will not solve the systemic problem of bank mis-selling in India. This has to be a board driven initiative.

Two, for Yes Bank this is an opportunity to transform the way banks in India treat their customers. Post the Rana Kapoor regime, the management has now been taken over by a bank consortium and there is a professional board in place. This crisis is a great opportunity for the bank to set a standard in customer protection by putting in place protocols that reinforce the fiduciary responsibility of a bank towards its customers. 

Three, this may not end well for Sebi if the past is any indication of future events. Steps taken in earlier years with a view to protect retail investors have usually ended badly for those taking bold steps. In 2009 CB Bhave, the then chairman of Sebi did two big things in investor interest.  One, he removed the front load in a mutual fund. Two, he went to court against the insurance regulator (IRDAI) saying that the Ulip was actually a mutual fund masquerading as an insurance since 90% of the premium was in a mutual fund like product. The government in 2010 issued an ordinance to rule that IRDAI controls the Ulips. Bhave was then moved out soon after. I fear that the investor-first team lead by Sebi chairman Ajay Tyagi is at risk in a similar fashion.

In fact, the recent Ministry of Finance intervention over the valuation of AT1 bonds that Sebi was putting in place in retail investor interest points to the road ahead. Bank lobbying derailed the move to provide safe spaces for pure retail investors to put their money to work.

Finance Minister Nirmala Sitharaman must look at the story from the point of view of retail investors and not from the lobbying by firms, other regulators and bureaucrats who have caused an open loot of retail money through regulated entities like banks and insurance companies over the years.

Monika Halan is India’s trusted personal finance writer, speaker and author who helps families get their money decisions right.

Franklin Templeton is now a fund house risk for investors

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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 11^th 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.

Bringing up rich baby – some parenting possibilities

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When I wrote the raja beta and rani bitiya piece last week, I had no idea that it would touch such a nerve. As of today, the post on my personal blog has been viewed some 66,000 times and my first tweet reached more than 4.5 lakh people. There were many conversations around the topic as people weighed in with their own experiences of seeing a new generation of entitled young men and women living off their parents but trying to save the world. One 2017 HSBC study says that 55% of the surveyed households in India were still supporting their children well into adulthood.

This phenomenon of sudden affluence affecting parenting decisions is not an India specific problem. Smaller families and sudden affluence are twin factors that give the kids growing in such homes far more bargaining power than before, not just in India, but in other regions as well. For example, economists Sebastian Galiani, Matthew Staiger and Gustavo Torrens show in a paper that over the past 100 years American kids have managed to capture an increasing share of the household surplus due to better bargaining power in the home.

While parenting is itself a challenge, managing to keep the kids anchored to prudent money mantras for the newly affluent is even tougher. It is indeed tempting to use the blast from the credit card to zap away the problems for the newly affluent, but good parenting is about equipping the next gen with life skills rather than just access to parental wealth. There are five key areas of awareness for newly affluent parents. 

One, kids don’t listen, they watch. If you want financial prudence in the kids, then you need to exercise it in your own lives. If the difference between need, want and greed is not that clear in your money decisions, the fuzziness will pass on to the gen next. Do the dinner table conversations (I’m hoping that these happen physically and not through shared Instagram memes) sometimes revolve around buying new cars or high value gadgets or whatever for yourself that you don’t really need, but it is more of a JLT (just like that) spend? I’d worry about the signals that the kids are getting through this on such big ticket spends.

Two, honest money conversations on what is possible and what is not can begin from a very early age. Making the kids a part of the spending decisions gives them a voice and a stake in the outcomes. A new luxury car today vs an addition to the college fund are conversations that make the kids a part of the money decisions of the little unit called home. Peer pressure is tough and the desire to give in is very real when it can be bought rather than fought. Communicate that buying yourself into a group or social approval is a temporary fix and while the money might be there, but is that really what the child wants to do – buy approval?

Three, breaking down an unthought desire into its components and then allowing the child to make the decision. The Mac Donald’s Happy Meal comes with a burger, a drink, some fries and a small toy. It is what finance jargon calls a ‘bundled product’. I remember the time that my own kid wanted it at age five. I had no problem in buying it but broke down the decision for her – you don’t like fries, the burger is not the kind you really like and the drink on its own costs far less. Are we buying the toy or the meal? Are we buying because they are selling or we really really like the deal? If we do, sure, let’s get it. At age five she walked from the deal. And from many others after that.

Four, encouraging young adults to earn some money in the holidays gives them some idea of what it takes to buy that flat white so easily ordered and half drunk. Though I did not watch the series The Big Switch, reportson this reality show said that the very rich kids had a change of heart and habit when they switched roles with a poorer young adult. One of the participants is quoted in the story saying: “The first thing I did was hug my maid, driver and cook,” she says. “I thanked them for everything they had done to make me happy. My parents were really taken aback.”

Five, and this is the toughest, making money and what it can buy, a proxy for your attention and time is a slippery slope to financially spoilt rich kids. Figuring out that a small kid would rather play with mum rather than alone with an expensive gadget is a learning for a parent.

Parenting is about balance. To starve them of what your money can buy or over indulge can both have consequences. The best gift a baby gives the parent is the chance to reset their own lives one more time. Doing that is possibly the best parenting advice you can get.

Lobbying with the Ministry of Finance kills a SEBI circular issued in retail investor interest

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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:

1. No mutual fund will own more than 10% of these bonds issued by a single issuer across all its schemes.
2. Not more than 10% of a scheme to be invested in these bonds.
3. And not more than 5% of a scheme in the bonds of a single issuer. 
4. 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:

1. The tenor of the bonds will be considered as 100 years since they are, well, perpetual.
2. 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.

Some of the adult raja betas and rani bitiyas of the newly rich Indian are bored, woke and high maintenance. But papa and mama still pay the bills

Photo by Belle Co on Pexels.com

Chucking a brand-new laptop into the family swimming pool to see if it was indeed waterproof, to barking into the phone to call the domestic help to raise the curtains that are two feet away from the bejeweled GenZ hand, to deliberately smashing a new phone after a fight with the parents. These are just some stories of kids in a premier Delhi school known for its fleet of uber luxury cars in the morning and early evening school drop and pick up hours. As one cohort of the younger millennials and early gen Z move toward the mid to late 20s, there is a worried group of parents who are watching in mounting horror at what their deeply loved raja betas and rani bitiyas are turning into. Bored, woke and high maintenance who need brands, clubs and luxury holidays to just survive, this bunch of rich young adults are still dependent on their parents for the lifestyle they take for granted.

Nikhila Chawla (name changed) is 25. She is a post graduate who carries very stringent views on gender equality and patriarchy. She is vocally politically far left. But is unable to find a job that earns anything, let alone sustain her lifestyle that befits the daughter of a rich Mumbai doctor. Chawla totally fails to see the contradiction of her woke views, her expensive habits and her reality. Two generations ago her situation would not have been an issue, since an arranged marriage would have solved the income problem. But this age cohort grew up with the new ideas of liberation and are sensitive to issues of gender and patriarchy but see absolutely no conflict on being dependent on the father’s income and wealth. Of being a ‘comrade’ while sipping sparkling water at the latest happening hub in town that she does not pay for.

It is a thin sliver of population. They account for just 8% of the 286 million households (1.3 billion people). But even 8% adds upto more than a 100 million affluent. This is a cohort that is both very visible and audible since the really rich prefer to stay quiet and the aspirants are busy working. A BCG Report puts this cohort to have grown at an average annual rate of 9% over the decade ending 2018. Of course, in a country of 1.3 billion, it would be wrong to typecast an entire generation with a broad brush. This story is just about one sliver of the population not the entire cohort. The opposite stories of the same generation of parents pushing for performance are equally strong.

This is the wedge of population that benefitted the most in relative terms from India’s 1991 reform. They were ready with the degrees and the fire in the belly to make the transition from aspirants to affluent happen. This generation grew up in a socialist country, lining up for water, milk, telephones, scooters and most other things. They gave it all they had once opportunity arrived in India and began living the dream of an upper middle-class life. Once they achieved wealth, they were determined that their kids would not repeat their own drudgery. This gave rise to helicopter parenting where problems were zapped out of sight even before they became manifest in their kids’ lives. But the newly affluent forgot that it was the desperate hard work that gave them the wealth boost, but by wrapping the kids in cotton wool they were taking away a key ingredient of success – fire in the belly. 

The indulgence has had very different outcomes than imagined. Over lunch Rajesh Sethi (name changed), a rich Delhi professional tells me matter of factly, that it is the father’s net worth that now decides the education destination of the kids. He had in mind his son who wanted not just to go abroad to study but was choosing the most expensive course and city plus lifestyle expenses of course.

It would be wrong to blame the kids since they grew up with the promises of a good life forever murmured over the years by parents who just wanted the kids to be happy and stress free. Being happy also meant not working very hard to crack the very tough higher education entry exams in India, because papa would pay for an under-graduation degree in the best of the party capitals of the world. Indian parents, according to RBI data have forked out almost $5 billion in higher education fees in 2019-20 and another $2.4 billion for ‘maintenance of close relatives’. India spent 27% of its foreign exchange spent by individuals in a year on sending kids abroad to study and another 18% to maintain them.

Fire in the belly was what got the newly rich Indian rich and when they see their off-spring listless and entitled they worry about their future. Parental wealth will get them through but in an aspiring country like India with contenders for the pie rising out of the soil faster than before, the life skills needed to stay afloat might be missing. The grim realization that money is the goal but not the destination is just now dawning on the parents of the now not-so-young raja betas and rani bitiyas.

The real challenge for newly affluent parents is to bring up children who are aware of their privilege and are willing to use it to actually make a difference rather than just being keyboard and hashtag warriors. Not having money brings with it a set of problems. Having it, brings a whole new world of challenges. And there are somethings that money cannot buy – having sorted kids is just one of them.

Monika Halan is India’s trusted personal finance writer, speaker and author who helps families get their money decisions right.