• He helps with filling up the form
• He knows what is happening in the industry and will be able to give some useful advice
• He will co-ordinate with the fund house or the insurance company – and most clients find that pretty painful.
• He will handle the claim if it comes to such a situation
• He is authorised and qualified so he must be adding some value in the transaction
• His services are FREE!! HA HA
• He might actually share his commission, will he not?
• He chases, comes home, does all the paper work, reminds…what more can I want? LOL

All this is perhaps true, but let us look at the risks:

• He might give a sub optimal product based on his limited understanding
• Most agents do not understand insurance – medical, life or even simple risks
• The agent may go out of business soon – and you will again be looking for a new guy/gal
• The agent may die before you do…:-)
• If the agent switches loyalty, he may not service the older products he has sold…
• He may fight with the main company – and put your product in a jeopardy!

so be careful in buying a financial product…

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Alas such options are not available. In fact not even a SINGLE pension product (disbursal stage) is available from the mutual fund industry, and that is a real big tragedy.

The Chairman of SEBI occasionally makes a noise that Mutual funds should ‘bring pension products’.

To me this is complete humbug. There has to be some clarity among the regulators about who will regulate what! If a mutual fund has a pension plan will PFRDA make norms for it? If a life insurance company has a pension plan without a life cover attached, should they be allowed to launch it at all? What is the role of IRDA if the ‘product’ call is taken wrongly by another regulator…these are all issues which the govt. will have to resolve BEFORE making holistic statements.

By the way I am convinced that there is no pension plan with the life insurance companies which inspires you to lock in the money for 60 years….

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It takes a lot of hard work, luck, government lobbying, team building – to create companies like Tata Steel, Hdfc, TCS, Infosys, Reliance, Honda Motors. It takes years, if not decades to create good companies too!

However a few people feel (and they are fed such nonsense by the ads) – pick up a penny stock (also called micro cap) – and it will double in a few months. One ad about which I had written about earlier gives you a game plan by which your US $ 200 becomes a few million – and how you do not need a Retirement Plan at all!

Only if life were so simple! Alas, it is not so. Not so at all!

Cheap stocks – by whatever name called are cheap because:

- NOBODY IS BUYING THEM!

- NOBODY ELSE IS talking to those companies, analysts do not track it, responsible media does not know about them, their boards are unknown,….

-NOBODY IS interested in them! – these are companies which are so small that it does not excite big investors, mutual funds, life insurance companies, etc.

Leave such companies to the big people – let the Enams, JM, Dsp, Kotaks of the world invest in such companies.

If you do not know how to manage your money, being a Venture capitalist is not a great idea, what say?

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A finance ministry official says “If foreigners are allowed to invest directly in India, volatility will go down in Indian markets”. I am completely unable to understand this.

Like I cannot understand what is wrong with Intra day or Intra month volatility! Markets have always been volatile – the question is how volatile that is all. We should also stop this excessive ‘foreign’ syndrome. The hangover of the gora just refuses to go away.

Let us look at FDI in retail. We allowed FDI in banking – we now have ONLY foreign banks in India – other than the PSU banks that is. Has it helped in banking? We have had FDI in mutual funds – at least for the past 20 years – has it helped in penetrating the rural markets? We have FDI in life and general insurance….same answer is it not? L O L.

Then we thought we need FDI in retail (I guess this was a ploy to hold the real estate price high) – but somebody said it was to tackle the runaway valuation of the US $!!

Now imagine the foreigner wanting to invest in India. He will want data regarding say the last 10 year’s working (maybe in XBRL format), he will want some independent research reports (we do not have them at all), he will want to open a brokerage account (forget opening, I am unable to get Icici direct to activate my wife’s brokerage account for the past 12 months!)…OMG it requires some effort!

First increase the number of investors in India (I am not sure whether we have 100,000 investors or 1,000,000 investors – Sucheta Dalal vs Sebi!!) – whatever the figure, we need to double it a couple of times at least. Once we do that we can get the gora…

first let the Indians invest in India, then the gora can come…what is the hurry??

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1. What you do not understand, is not worth knowing: If a financial planner tells you ‘Sir, you do not understand this, I will explain it to you’ – please be IMPOLITE and ask him to …….. (unprintable!). NOBODY (repeat NOBODY) is interested in ‘teaching’ you. Normally it is in the interest of the oil skin salesman that you understand LESS, rarely more. Unless of course he is a professor. If he is a professor, he is not really interested in teaching you, so he will not attempt.

2. Be careful of what your broker can do for you: First of all have less expectation from your broker. Then meet him. Then lower your expectations to the right level. He is interested in getting you to fill some forms, buy some shares, mutual funds, unit linked pension plans, etc. YOU and YOU alone are interested in knowing what is good for you. Take inputs from your broker, use your OWN brain and then decide. If he pushes you for time, ask him to take a chill pill.

3. ANYBODY who has a secret way of earning more is telling you a LIE. A pure blatant lie. There are no secrets that people go around giving free to all and sundry. Sadly some such people go around the world -and they have a fantastic affinity to recent retirees sitting on Rs. 85 lakhs and wondering what to do with that money. Be damn careful.

4. Oil skin salesmen today have many qualifications, be careful. Once upon a time you could trust your banker – but like I said that was once upon a time! So in the alphabet soup of qualifications they pick up a few alphabets and threaten you with their lingo. See point 1. What you do not understand is NOT WORTH KNOWING especially once you have retired.

5. Do not be overconfident (It cannot happen to me syndrome): Remember that is what everybody thinks, till it actually happens. Be careful. Ask your kids, friends, neighbors,….but decide on your own.

6. THE MOST IMPORTANT one: know whom to trust. Not your brother, brother -in-law,…..boss, exboss, banker….remember finding the right person is not easy, but it is a MUST – and you should have 3-4 people with whom you can discuss. Choose such a person carefully.

Risks are worth taking, only if you understand them.

If you are sitting in a group where investment advice is being given FREE and you do not know who is paying the bill, boss it is you. You are sucker who is being had

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Brilliant advise. If you do not know what a portfolio manager does and what a financial planner does, you have right to talk like this. Also sit on panels to judge ‘who is the best aggregator for mutual funds’ and call him the best fund manager.

A good financial planner should:

- make you understand the importance of goals

- help you set them

-tell you what is practical and what is not

- help you create a portfolio

-ensure that your wife/dependents know and understand what you do

- help you make a will / nominate properly

For all this done well, HE SHOULD GET A FEE. To think he can create a portfolio that will beat the market is wrong. If you get good returns, it is because YOU TOOK THE RISK. If you do not get a good return, you do not get a good return.

Among the good financial planners that I have met – there are only 2 types- a) those who know that they are not portfolio managers and b) those who do not know.

Of course there are those who pretend that they are – and may even have a track record. As soon as they realise the role of luck, better for them.

If there are financial planners who agree to a profit sharing agreement, God bless the planner and the client.

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was a call that I handled this week.

I said:

Gee, frankly I do not know. It takes a great mind to say “I will charge you Rs. 24k, but honestly there is not much to do. And if you do your Rs. 250,000 per month SIP with me under my code, I will rebate the commission for the first year from the fee that you pay me. Take term insurance from the cheapest source on the net. Take your medical insurance from a government run organisation (internationally Ergo and Alliance are great claims payers – but I have no clue how they will behave in India where medical records have no legal sanctity).

So I asked him more details about the financial planner. He had promised to

monitor the portfolio on a regular basis (I am still wondering what this means since I heard it 30 years ago),

will anticipate the changes and do a portfolio shuffling on a YEARLY BASIS (to me this was suicide),

choose a Pension Plan and a Child Plan (to me this was amusing)

choose a term plan and a medical insurance plan (he was choosing the MOST complicated company)

do a cash flow (what if analysis for 30 years including what would happen if he lost a hand, leg, heart, life, etc.)

do a cash flow projection for him during retirement (this guy is now 32 years old)

do an annual review for a fee of Rs. 5000

be available for 3 hours during the year for any discussion

The client had a choice of where he bought mutual funds from (he would be doing a 1 year SIP and at the end of the year decide whether to continue based on the performance), BUT the life insurance had to be bought through the financial planner.

Frankly from the clients point of view this was NOT  a good deal, nor was the client capable of doing it himself — he was damn too lazy.

I had no alternatives to suggest….last I know his wife was tugging his shirt collar saying “Yeh sirf gyaan deta hai….WE NEED TO DO SOME THING..so what if it is wrong, we are smart enough to handle adversities, are we not”.

God bless.

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• if 70% of the shares of Hdfc bank and Icici bank are held by FIIs, how are they Indian banks?
• if 100% retail is allowed to sell mutual funds and life insurance, why not tomatoes and jewellery?
• if a public sector bank promotes a life insurance company, why is it called a private insurance company?
• if 100% investments are allowed in banks, mutual funds, and brokerage houses, why not in insurance?
• why is life insurance strategic, but banking not strategic?
• why is foreign investment by banks allowed in Indian banks, but foreign airlines cannot invest in airlines?
• if a bunch of foreign investors want to lose money in insurance and airline business, what is OUR problem?
• is the stock exchange strategic or will we allow NYSE, Nasdaq and LSE set up Indian arms?
• will Govt. allow NSE to list and then allow the foreign exchanges into India?

too much confusion….will anybody answer some or all of these questions please?

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Let us take a kid born in 1987 – would have graduated in 2007-8 and finished his/her MBA in 2009. This was not a great season to graduate, but would have found a decent job – say paying Rs. 400,000.

Assuming that this kid was very smart he/she would have started a SIP in 2009 or 2010. Now if her parents were from the public sector or worse from the government cadre they would have said the following:

-put money in PPF

- buy a LIC policy – it belongs to the government, your money is safe

- make a RD in a bank.

A smart kid may have done all this with small amounts, but also started a SIP in an equity fund.

Circa Nov 2011. Very good chance that the SIP is showing negative returns, especially if it is a dividend payout scheme (like what all elss schemes ought to be). Imagine the conversation that the kid must be going through at home:

Dad: I told you not to put money in equities….see..you are losing money!!!

Kid: But dad equity is for the long term…

Dad: Do not teach me..I work in a bank, I know how it works

Kid: I am doing only 5000 per month – of which Rs. 3500 is in an ELSS

Dad: You could have opened a FD in my bank. Same tax benefits!

Kid: but dad the interest is taxable…na?

Mom: Just because you have done MBA you think you know more than your dad? He has 22 years experience in banking – same bank that too. He is now close to becoming a GM in the bank!!!

Kid: Mom I am not arguing, just telling you the facts…bank interest is taxable while mutual funds are free of tax…

Mom: Ok enough of your argument…see how much this money would have become in 2-3 years in a bank or PPF. Will it ever become that much in this so called equity? My friend’s son lost Rs. 3.5 lakhs in the share market. We are not so rich to lose it. Remember all this money will be required for your wedding…

Kid: Ok mom…bye see you dad…I will write the bank clerical exam. Afterall the MBA degree is not really helping….

My take on this conversation:

it is really difficult for kids (and even elders, but recent converts) to keep investing in a falling market. Their conviction is severely tested during such times. The market has really fallen off the cliff – and we do not know whether we are mid way or have reached the end. Some very smart people have stopped their SIPs about 12 months back and are currently looking smart.

However it does make sense, kids, to keep investing. If you are scared, it may make sense to reduce the amount – but if you are aggressive you should be starting a new one now! Ok, jokes apart, just keep the SIP going, and in 12 months, 20 months or 30 months, I promise you, your returns will be better than the debt options – all the best.

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Can you believe this…if you are a middle class Indian?

I found it a little amusing…but not difficult to believe. When I spoke to him, I just heard some of his expenses – Rs. 3000 for a gift for a colleague’s wedding, EMI on a car, and EMI on a motorcycle. Rented house – supporting his parents so paying Rs. 23,000 as rent.

These were too adhoc, so I did not want to be judgmental. So I asked him to maintain accounts for at least a couple of months before I could comment….and here are the expenses:

i was not as stunned to see this. This guy is about 28 years of age – works as an accountant – and as he himself admits, he is well paid. He is still a bachelor, says he is not a big spender – and has ZERO savings – except for some mutual funds (80C), nsc, and ppf.

I said my life style is very different, cannot comment on yours.

However readers are welcome to comment. He reads my blog….:-)

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