Friday, January 29, 2010


You've earned hard, now let money do the same for you

THEY say that money is on the top of everyone’s mind. That’s really true. The fact is that it stays right there, and it requires a big trigger to get moving on it. We then rationalize, and justify our inertia. While my personal view is that financial planning is a universal requirement, there are some show-stoppers which we must recognize. If these thoughts are there in your mind, banish them and achieve financial freedom. The top reasons for procrastination are:

I have too little money

Financial planning is required when the goals you have are more than the funds that you possess. Waiting for the great day when we have accumulated a sizeable corpus to start planning is like living for today, without any plans for tomorrow.

I don’t have enough to spend

Even if you are thinking this, you need a plan, manage credit (or debt) judiciously. Invest the money you receive in a liquid fund and keep a minimum amount in the bank. Prepare a budget and stick to it, you may be surprised with how much you can save.

After I complete my house

I have come across clients who have used marble-tops in their kitchen and granite on their floors as they had funds in their bank account. Only later they realized that their sons education was of greater priority.

I can’t afford planning

Its the same as refusing to consult a specialist doctor even when you are seriously ill and advised to do so. Constructing a financial plan is as important as getting the blueprints to build your home. Paying for these services also makes your advisor accountable to you, so don’t hesitate on this count.

I can do it myself

Some people have an inborn flair for numbers and are organized enough to keep regular track of all their investments. Now the question is: are they emotionally cut off from their investments enough to take the right decisions. A financial advisor has the requisite qualifications and training that a layman can only master to a small extent.

I only invest in FDs
Most of India’s domestic savings are heading to bank deposits. However, with inflation soaring and interest being taxable, you need an avenue which enhances the value of your investments, after inflation and tax.

I don’t need advisers
There is an information overload: the media and the internet make investing look like child’s play. There are many factors to consider: financial goals, cash flow, risk taking ability. If this seems overwhelming, take the help of an advisor, who can recommend changes not for the entire mass, but specifically for you.

I don’t trust advisers

If you lack trust, because of an awful experience previously, the mistake was probably made while hiring the advisor. Make sure you do your homework before choosing your advisor. Remember, you need to exercise the same care as you would while selecting your life partner.

I don’t have the time

This is the most popular reason that people give for procrastinating. Take one step at a time. Talk to people you know and trust, and ask them who manages their finances. Talk to a few advisers; look for the 3 Es empathy, ethics, and education. Invest some time to know your advisor and you can save yourself a lot of time, effort and money! But do it today.

Monday, January 25, 2010

Replace EPFO With NPS??

Suddenly, there’s seems to be an abundance of people who are eager to mark the New Pension System (NPS) as a failure. Everyone’s favourite statistic is the laughably small number of people (2,500 or so) who have actually, of their own free will, enrolled in the NPS. However, this number is completely irrelevant. It doesn’t tell you anything about the NPS. What it does tell you is that the NPS today is like a product that has been designed, but exists only in the design labs. It hasn’t yet been launched in the market.

Moreover, the 2,500 members that the NPS has got is a miracle because, out of the various entities who are supposed to be selling it, some are ignoring it completely, while others are actively de-selling it. If you walk into a bank that’s supposed to be an NPS agent, chances are that no one in the branch would have heard of the NPS and they will actively try to sell you an unit-linked insurance policy (ULIP) or a mutual fund as an alternative to the NPS. This is a product without a seller, and the way the world works, for all practical purposes, such a product doesn’t really exist.

I’ve read that the pension authority (PFRDA) is about to launch an advertising campaign to promote the product. That’s great and will surely result in more people hearing about the NPS. However, people who have first hand experience of marketing financial products would still doubt whether it would be enough to actually create participation without a structure that creates more profit for the seller than competing products do. It’s possible that the NPS’s future lies in being a mandatory saving, just like practically every retirement savings solution around the world.

Under the circumstances, the most significant step would the replacement of the Employees’ Provident Fund Organisation (EPFO) with the NPS for the private sector. It’s a puzzle that, as things stand today, the government’s pension money is being managed by the private sector (the NPS’s fund managers) and the private sector’s provident funds are being managed (though managed is not the right word) by the EPFO. Moving the private sector to the NPS is an urgent need. Not only would this free employee from struggling with the phenomenally hostile service quality of the EPFO, it could encourage many more businesses to come into the pension fold.

This is such an obvious step that it’s a puzzle that it wasn’t done right away with the launch of the NPS. In any case, if the NPS is ever to move beyond being just a solution to the government’s financial problem of financing pensions and fulfill its real potential, then it has to become an automatic and unavoidable option for every employee in the country.