Learning from the Media!

A few days ago I was watching a personal finance program on ET TV. How some statements are now being thrown about is very surprising – and amusing if one were not bothered about the side effects. A portfolio for a 55 year old individual (5 years to go for retirement) was about 50% in debt and the balance was in balanced funds. These balanced funds too had a debt bias – more than 50% of the balanced funds was in debt instruments. Overall perhaps the amount of money this man had in debt could be closer to 75% and the balance was in equity.

This is really funny because no debt fund in India over long periods of time has beaten the government schemes like national savings certificate, public provident fund or the senior citizens yojana. So if a 55 year old needs a debt instrument over a long period why not a L&T debenture at 10.25% p.a.? For a person nearing retirement it makes sense to be in such an instrument does it not? Or a Tata Motors fixed deposit @ 10% p.a.?

Well these companies DO NOT ADVERTISE on a regular basis – only IPO advertising is possible, so no point in recommending them unless you are a broker! What about the asset allocation towards debt? Again it depends so much on a case to case basis, that every question can be answered saying “It depends….”. If it is a 55 year old whose children have settled, wife is working in a great company with a nice salary why should he change his asset allocation? What if he lives to the age of 90? What about inflation? So the answer depends on the size of the corpus. Are there any persons dependant on him? If the answer is yes then the answer is different from the situation when the answer is No!

Should a person repay a loan or invest the surplus? Fair enough question. Again the answer starts saying “It depends….”!!

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