I am out for a Saturday lunch with the husband and his friend. They meet regularly to argue over whether RD (Burman, not recurring deposit) was God. They almost cause a riot arguing about Bappi Lahiri (don’t even ask). Soon, sanity comes along with the food and the conversation turns to the friend’s portfolio (thank you, God). He is using some adviser who floats around in his office and seems pretty happy with him. I ask a few questions and feeling a bit like Gregory House (those who watch the TV series House will get the reference), I set out to destroy his warm, fuzzy feelings towards a guy who is obviously incompetent.
For many reasons, it is good that life insurance firms are opting for initial public offerings (IPOs). Big IPOs lead to market depth—crucial now for India because household money is finally coming to equities through institutions. It is also good for those tracking this industry because listings will encourage more public scrutiny of insurance firms through analysts covering the sector, through institutional investors such as mutual funds and pension funds, and products from this industry itself such as the unit-linked insurance plans (Ulips). It will be interesting to see which equity Ulips buy into what life insurance company stocks. Then there is the public debate that takes place around an IPO and its merits.
Imagine this. You need to pay your life insurance premium today. You’d like to check how much of your home loan is still left. You want to start one more systematic investment plan. You want to pay your credit card bill. You want to make a contribution to your Public Provident Fund (PPF) account. You want to check the balance in your Employees’ Provident Fund (EPF) account. You want to check when your car insurance is due. To do all of these you may just call your financial planner (who you pay a nice hefty fee each year for these servicers), or you could log in to multiple sites, put in 10 different usernames, remember 10 passwords. Two of the 10 sites will make you change your password. Some may have an error message. Some transactions won’t go through. And 2 hours later, you will be frustrated and cursing this clunky financial world we inhabit.
When you buy a mutual fund through your bank, is the bank advising you or acting as a vendor? The answer to this question is important because the product you finally walk out with will either be a product that best suits your needs or a product that maximises the bank’s own interest. According to data compiled by Outlook Asia Capital Wealth Management India, which put together commission data from the Association of Mutual Funds in India (Amfi) (http://bit.ly/2a1hFAL ) and individual fund house commission numbers from their websites, banks are acting as advisers while wearing the hat of vendors. If you did not pay a fee for the advice in the bank and then walked to another desk to buy the product, the bank has mixed up the two roles. Anecdotal evidence shows that customers are influenced by what the bank manager has to say on product choice. It is unusual for a person to go to a bank asking for the product by name. It is usually a push from the bank that sees the fund build up in the account and then makes a sales pitch.
Is a unit-linked insurance plan (Ulip) a good product? The question is asked quite often on my Twitter timeline. Life insurance industry chief executive officers talk about this all the time. And there is some media chatter on the coming of age of Ulips. What’s the truth and how should you think about it? Let us apply the principles first. A financial product is bought because it solves a financial problem you have. It should perform on metrics of cost, benefits, tax efficiency and ease of transaction. It should compare well with other products that solve the same problem.
When in the space of one month you get three calls all asking for inputs on the same issue, you know that the dollar pipeline behind the question is green and flush. The callers wanted to better understand ‘financial capability’. What happened to financial literacy? That used to be the buzz word till recently. It seems that after the spectacular and expensive failure of financial literacy efforts, the new thing that is soaking up attention, effort and, of course, money, is building financial capability. I think we’ll see marginally better results in this, but five years and millions of dollars later, they will move onto something else. But let’s understand why literacy became the buzzword, why it failed and why building capacity is doomed.
Would you buy an insurance policy or a mutual fund on Flipkart or Amazon or Paytm? While you chew over the question, regulators that watch over these two industries are gearing up to frame regulation that puts in place some rules of the game. The capital market regulator had constituted a committee led by Nandan Nilkeni to work this out six months ago. The Securities and Exchange Board of India (Sebi), it seems, is just a month away from a draft that allows e-wallets to vend funds. The inter-regulatory approvals are currently getting worked out. The insurance regulator uploaded a draft insurance e-commerce regulation on 7 June. You can read it here:http://bit.ly/28KdHMg.
RRR exit, hmmm. Brexit, meh. Shrugging off plenty of bad news, the Sensex hit an 11-month high this week. What’s going on? The story for India is the thickening of the retail equity pipeline, not directly in stocks, but through institutions such as pension funds and mutual funds. Sustained flows of retail money is coming in. And it is coming in a staggered manner. Indian household money has traditionally been in real assets such as gold and real estate, in bank fixed deposits (FDs) and to some extent in life insurance policies. The organised sector contributed to their provident fund, which again went into bonds and other fixed return paper. Think about the change in our own investing behaviour—we swore by FDs and Life Insurance Corporation of India policies, but are now die-hard SIPpers (investors into systematic investment plans of mutual funds). What changed?
I’m reading two books on managing money. The first, All Your Worth: The Ultimate Lifetime Money Plan, written by mother-daughter duo Senator Elizabeth Warren and Amelia Warren Tyagi, is about finding balance in your money life as that leads to emotional peace and financial well-being. The second, The Index Card: Why Personal Finance Doesn’t Have To Be Complicated, is by Helaine Olen and Harold Pollack. Olen is also the author of the superb book, Pound Foolish, that showed the dark underbelly of the personal finance and financial literacy industry.
There has been disquiet in the offices of asset management companies (AMCs) over the past week. The story began some months ago when the market regulator, Securities and Exchange Board of India (Sebi), proposed that AMCs disclose top management remuneration (salaries, perks, stock options). The first reaction within the industry was disbelief and then defiance—we will resist this, said AMC chief executives officers (CEOs) in private conversations last year. Despite some back-room conversations between Sebi and the industry, the market regulator went ahead and announced on 18 March 2016 (http://bit.ly/1W5JJZJ ) that AMC staff remuneration above a threshold of Rs.60 lakh must be disclosed from 1 May 2016. Why Rs.60 lakh? Because that is the threshold that other companies in India comply with.