An off-the-shelf box of financial products needed

An average person needs between 10 and 15 financial products to manage the complexity of contemporary life. A few decades ago, when the government was the main employer and would guarantee returns, it was easy to just leave it to the government to fix your life if you were lucky enough to be in the network. Those outside just got by with their own savings in gold, real estate and bank deposits. Opening up the markets boosts both incomes and choices. It pours millions of people into the middle class that consumes not just pizzas and gyms, but also financial products. But given the complexity of the market, even willing on-boarders to formal finance find it difficult to choose. One way to solve this is to have generics in the financial sector. Just as generics cost much lower as compared to branded pharma, we can think of generics that do the basic function without the bells and whistles. What a Jan-Dhan Yojana did for banking can be done by similar products in insurance and market-linked investment.

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Throw away fear and greed while financial planning in 2019

The year 2018 taught us that buying last year’s winner is not a good idea. Several years of good returns, a successful ‘mutual funds sahi hai’ campaign and the spread of the SIP culture brought plenty of first-time investors into equity mutual funds. The SIP book grew 50% over calendar year 2017 and another 20% in 2018 despite choppy markets. New investors rushed in and some of them went straight to the winners of 2017—the mid- and small-cap mutual funds. Some of these funds had given returns of over 40% in 2017 inducing investors to throw caution to the winds and rush to the risky part of the equity market. Investors made two errors. One, bought last year’s winner in 2018. Two, allocated all their equity investment to the past winner.

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Are you a money yogi, an ostrich or a FD hugger?

It always happens. An introduction to mutual funds results in a feeding frenzy. I’d introduced a childhood friend to mutual funds two years ago. At age 45, she had left money and its management too late, but once she on-boarded mutual funds, she really went all the way. And beyond. Two years later, I’m horrified to see her portfolio. From the three-scheme portfolio she had started out with two years ago, she now sits on some 10 mutual fund schemes without a thought on what problem they solved. From an FD Hugger, she turned into a Feeding Frenzy Funder. I find that investors I meet fall into some stereotypes. Here are eight investor types—who are you?

The Ostrich: You have no plan, your money lies in your savings deposit and you are known to proudly say that you have no money to invest. You push away all help that comes your way because you are convinced that the world is full of cheats and you are just safer not doing anything rather than making an error. Beneath the don’t care mask, you are actually quite petrified about the state of your finance. And maybe for that reason believe that “something” will happen to make that pot of gold that you are convinced will come your way. Dream on.

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