Even the best financial plan would not take off if there is no sufficient surplus. You will know the surplus only when you prepare your family budget. If you are planning regular investment methods such as Systematic Investment Plan (SIP), prepare your family budget before you start the investment plan. Ensure that you have even surpluses each month and commit yourself only to such an amount equal to your minimum monthly surplus and not ‘average’ monthly surplus. This way, your investment plan will not be distressed.

Retirement Phase

Products that offer no solutions are no good for you even if they are the best.  You will regret the decision later and it would have cost you a fortune to own the products.

By the way, solution may have time horizon attached to it.  A particular solution may work only for a specified duration.  A right solution would be based more on strategies and tactics. You need to change your strategy or tactic when the times change. The products you use must be flexible to accommodate changes to your strategies and tactics. Look at the picture which depicts the typical investment process for retirement planning.  The products that you use in each phase have to be different to meet the requirement. So, don’t chase products.  Find a solution.

A nicely written and easy to understand FAQ on Greece default issue

That apart, my view is that some of the tax breaks provided to large number of investors has lost their relevance, they being the relics of socialistic era when Big Brother Govt would decide all aspects of our endeavour; what to eat, where to sleep, where to work, what to study and also where to save and invest. Look at the list of saving & investment options such as NSC, PPF, Life Insurance, and so on. All these are instruments created with the purpose of enabling the Govt. to borrow money from the public at subsidised rates (high cost to Govt. and artificially high rates of returns to the investors). When the economy began it’s journey towards being a market economy, the returns in the same instruments are not attractive any more. These tax breaks also induce the investors to be risk-averse. When our tax collection is so buoyant and new taxes (service tax) are being collected, why the Govt should provide tax breaks on savings and investments? This would vitiate the investment decision and tax payer would unnecessarily end up saving and investing sub optimally. Some of the instruments purchased in the initial years of low-income would not serve the purpose when the investor moves ahead. Because of lock-ins and contractual obligations investor would have to continue to invest sub-optimally, like it or not.

Let us take the case of Life Insurance premium. In our country no one buys only life cover. Under the garb of life cover, insurance companies collect huge money towards participating (traditional) and Unit Linked Plans. This leads to a mis-allocation of scarce investible surpluses both ways; investors in traditional plans may actually move ahead in their risk appetite but cannot redirect the investments. At the same time, investors in ULIPs may actually would not like to invest there because of high costs. These mis-allocations happen because of tax planning instruments.

Even when our economy had the moorings of socialism and later also, our govt. is not in a position to provide any meaningful social welfare to the billion plus population. The least it can do is to reduce the cost of health care. This can be easily achieved by providing good tax break on cost of health insurance. You just look at the niggardly limits set for this and then you will realise the fallacy of the system. It provides a limit of Rs.1 Lakh on mis-allocation of savings and investments but limits the exemption on health insurance costs to just Rs.15,000/- for an assessee. When the cost of quality health care is increasing exponentially, this limit actually induces the people to buy low-limit covers which may not be sufficient when the actual need arises.

These are couple of examples how the financial decisions can be mis-directed because of tax benefits and the litany can go on and on. The best option for the Govt. would be to give tax benefits only on expenses and not on savings and investments. Let people decide what is good for them. When we know whom to elect as our rulers, can’t we decide where and how to save and invest?

If you really take a deeper look at it, this phenomenon is not new, especially in our country where anyone, including any charlatan can take up the business of leading someone to salvation, financial or spiritual. Commonalities in both cases are:

a) You are smart and you know how to speak the language of salvation
b) You do not charge anything for the advice you provide. It comes free. Free advisors survive through advertisements, god people through donations
c) You are not accountable for any of your advices. The more you are unaccountable, the higher is your popularity.

If you go wrong, you can always say sorry. Or even better, say it works for you because you believe in it and may not work for everyone including atheists.

The financial services industry also provides lush green pasture for these ‘not-accountable’ and ‘free’ advisors. The motivation is easily understandable. There is mis-selling going on out there and people need a saviour. Set up a blog and lo and behold, you have become the messiah of the personal finance. Is it only in financial services industry wrong selling practices are adopted? Are there no wrong practices anywhere else where sales occur? You know the answer. But it is not possible for someone to be an expert in ‘identifying wrong selling practices and advising people correctly and freely’ in the case of, let us say, medicines. Because, it needs certain technical expertise and experience and if you are wrong such a course of action can kill someone. So my theory is that you can be an expert in any area that does not kill someone. You can be a spiritual guru because your preachings do not kill any one. So also, you can be a personal finance guru without any qualification because your advice is unlikely to kill anyone.

In all these, is there no role for the regulators? It appears that the regulation is applicable only to those who want to be regulated. Otherwise, how can someone advise the public which mutual fund to buy and which one to sell and which one to hold, without a licence? How else you can explain the phenomenon of all and sundry advising everyone else which stock to buy and which stock to sell, not themselves being brokers and portfolio managers?

Free and fast dissemination of information can lead a country to revolution and its people to freedom as the events of past few days have shown. But why do people not make quick, easy and enough money with all these free advisors abounding? And why such advisors-without-qualification remain not-so-rich themselves? For sure, if you are rich, even modestly, you will not waste your time advising others how-to-become rich unless it is your profession. You will spend most of your time enjoying the fruits of your wealth.

You are not sure of making money if you go to a qualified advisor. And in any case, many of the qualified financial advisors are not rich, not yet. So why not try the advice of an unqualified or qualfied or just anyone you can randomly meet, especially if it is available for free?

It is a very difficult journey for a revolutionary in any sphere or activity. In personal finance, it is very easy – start hating any randomly selected financial product/service and start blogging about it 24/7. See how fast your fan following grows.

Let me finish my musings with what else but a free advice! You may kindly take anyone’s advice as regards to your child’s education planning but please go to a qualified doctor if your child is unwell.

S – Specific
M – Measurable
A – Attainable
R – Relevant
T – Time Bound

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