If at a later date dictionary the word ‘inefficient’ is associated with personal finance, remember you read it here first. This post was triggered by a visit to a friend’s house last week. To be fair to him he had been calling me for a few months and I found the willingness only now. He is aged about 60 years and he wanted to sort out his personal finance.

His bank balance stunned me. He had Rs. 25 Lakhs in his mother’s savings bank account,  some shares of TCS, a bank fixed deposit of Rs. 7 lakhs, and about Rs. 3-4 lakhs in an assorted ‘other savings account’ of his mother. The latest interest credited by the bank in her account was Rs. 44k ! She also had some company fixed deposits (thank God it was earning 9% p.a. in Sundaram Finance).

His own account was bulging with about Rs. 17 lakhs, his Public Provident fund had Rs. 25 lakhs and he had an assorted ‘other bank accounts’ with Rs. 5-6 lakhs.

All this cash totalled Rs. 84,00,000. Why on earth would a person sit on so much cash when other assets like even floater funds would have given returns in excess of 8% per annum (that is Rs. 6 lakhs of income)? I have no clue – sheer inertia, laziness or ??? Again it is the power of compounding that people do not understand I guess. One good thing though – my earlier visit to his house was in 2007 – I had done 3-4 SIPs for his mother – he hates doing SIPs for more than a year – I have no clue why! However that was Rs. 18 lakhs invested during the worst part of the market – and he had statements which showed that his 18 had become about Rs. 24 lakhs. He was not very excited. He actually did not care either about wealth creation or wealth exhaustion – if it involved some effort on his part.

Largely I seem to be meeting people who are happy with sub optimal returns because their expenses are far, far lesser than their income. For example this guy earns about Rs. 1.5 lakhs a month in a post retirement job. His expenses are Rs. 20k a month. Excess money accumulating in the savings bank account does not hurt him at all. However there is another issue leaving so much money in his bank account. He feels rich and invests at random – he has invested in Hdfc infrastructure, Reliance infra, Sundaram tax saver (LOL amt invested is Rs. 100,000 from a non tax payers account).

Sometimes you wonder what to do!

Bankers delight. Financial Planner’s nightmare.

He banks with Hdfc bank and SBI. Is he the reason that these banks are so profitable?

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  1. I think yes ..

    These can be one of the things why banks make money without any reason . Many people who have a lot of money keep it in normal account and give banks a chance to make money on it .

    I also know some clients who had 20 lacs+ Cash in normal accounts from last some years . Just because they are lazy to take action .


  2. Many of the one generation older people i.e. my father generation are :
    1) Totally Risk Averse. They don’t like volatality at all. Instead, they are happy with 3.5%
    2) No idea about Financial Planning
    3) Go by “general public opinion” e.g. LIC (Jeevan Anand) is safe;
    4) As you said, some of the Rich have enough money – that sometimes, they dont care. Kind of inertia.
    5) They dont like monitoring their investments, even though it could be simple.
    6) Real Estate is best investment / saving method

    Thanks for your blog posts. Useful insights. Keep up the good work.

  3. hi NP,

    Not risk averse. Unable to understand risk. Real return means Nominal Return (what the bank tells u) MINUS inflation. i.e. 3.5% MINUS 8% which is -4.5%!!

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