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.
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.
I get an SMS alert. It tells me that a nicely fat number has dropped into my account this morning. This is the cheque I put in three days back. The cheque was given by the bank through which I had opened my public provident fund (PPF) account 16 years ago. (PPF is a 15-year account, but money comes back in the 16th year). I need the money to prepay a toxic home loan product that I find myself locked into (yes, the banks can cheat even the financially literate), or else I would have rolled over the money for another five years. But the process of liquidating a 15-year-old account in a product that has been my all-time favourite triggers a trip down the memory lane and why I opened the account.
Expense Account, Mint
The BlackBerry is active but basic banking is not. I’m at Gaula, home to only 150 people across 27 families. It is also the regional office of Chirag, a 21-year-old non-profit based out of Sitla, Uttarakhand.