Thursday, November 6, 2003

Wealth Protection

The book delves into every known wealth destruction threat.
Gautam Chikermane
What affects your personal finances more: a downturn in the economy or a personal disability? Most likely, the latter. But if you see the number of people glued to their TVs, studying the streaming stock prices, you would think the economy is more important. So, a Sensex slide of 100 points seems more important than a change in law that makes dividends tax-free in your hands. In a well-researched book, Jarvis and Mandell take these contradictions head on: "People focus on the macro economy..., rather than paying proper attention to their own personal economy." As a result, "Many of us succumb to the uneasiness surrounding the volatility of the market, which... makes us feel powerless to change our own wealth protection situation."
‘Wealth protection’ is a new term in a country that’s only now learning to deal with wealth creation. It is such a vast and deep subject that one wonders if the personal economies of our future generations will be like those of complex mid-sized enterprises that manage more than Rs 100 crore. From tax-saving entities to forming trusts so that the inheritors of your wealth are not burdened, from using insurance as an estate planning tool to buy-sell agreements, the book delves into every known wealth destruction threat.
Book review in Outlook Money

Wednesday, October 15, 2003

All under one roof

Assessing the new-generation banks' claims to being your one-stop money managers.
Gautam Chikermane
THOSE SEVEN bright red pieces–five triangles, one square and one parallelogram–represent a bank. Invented in China two millenniums ago, the game of Qiqiaoban (seven clever pieces), now popular as Tangram, was designed to tickle the analytical abilities of children. The myriad shapes–of people, objects, letters, numbers, ideas–that these seven modest-looking pieces can morph into boggles the imagination. Quite like the transformation your bank has undergone does.
Hardly a decade ago, that bank, a service-less PSU entity, was only good to park your salary and some fixed deposits; if you were a collateral-backed businessman, you used the bank to borrow money. Your ‘relationship’ with the bank depended on the level of intimacy with the bank manager, your ‘contact’; the perks were mostly quicker service–often, simply service.
Today, the bank has outgrown the confines of a branch building and traditional ‘service’. It is no longer the lowly safe-keeper of your salary. It aggressively pursues you with offers of loans to buy homes, cars, consumer goods. It sells you mutual funds and insurance. If you’re reasonably well-off, it aspires to manage all your investments. It pays your bills. What next? It will probably offer to pick up your children from school.
Opinion in Outlook Money

'You Will Get Unbiased, Unambiguous Advice'

Interview: Sanjay Sachdev, Chairman, Association of Financial Planners
Gautam Chikermane
Formed in 2001, the Association of Financial Planners is today a body of 24 institutions (four insurers, nine mutual funds, five banks, three distributors, three other institutions). As its new chairman, Sanjay Sachdev has his job cut out–getting the industry, regulators, corporations and individuals to buy financial planning as a concept, and building a team of certified financial planners. Excerpts from an interview with Gautam Chikermane:
What are your priorities today?
We need to get accreditation from the industry and the regulators. Every participant should be involved in marketing financial planning, and take it to the masses. This includes banks, which are involved in financial planning and distribution. Every financial planner, whether corporate, individual or manufacturer, whoever is interested in financial services, should become part of the financial planning industry and help nurture the financial planning movement in India.
We need to learn from those who are already in this business. There is a huge body of professionals engaged in advising investors, helping them buy mutual funds, insurance, pension products and so on. Our goal is also to help them sell the right product by educating them and spreading more awareness.
We also want to expand the role of financial planning and to get it recognised by regulators.
Do you have the competency to do all this?
There is knowhow in other parts of the world. Our effort is not to reinvent the wheel but to use the wisdom available to us from our global partners and utilise it here.
Interview in Outlook Money

Sunday, August 31, 2003

The threefold path

Why funds have not found favour with small investors yet.
Gautam Chikermane
Despite the higher returns they offer and the superior levels of transparency they practise, the penetration of mutual funds in India is a meagre 6 per cent compared to 76 per cent for banks. A Sebi-NCAER study says only 3 per cent of India’s household savings is invested in shares, debentures and the UTI; the rest is in FDs (44 per cent), government-backed instruments including PF and pensions (32 per cent), insurance (11 per cent), and idle cash (10 per cent). This is easily explained: having grown on a staple of government-backed, high-assured-returns schemes, made juicier by tax benefits, households are completely averse to risk.
Which was fine till yesterday. It’s a different, riskier world today. First, the returns on small savings have crashed by more than 4 percentage points in as many years. Second, tax benefits are disappearing. Third, sacred institutions, including state governments, are defaulting. Fourth, there’s inflation, invisible yet deadly. The real return (the difference between interest rate and inflation) on the 6.5 per cent tax-free RBI Relief Bond works out to 2.3 per cent today. It hurts–ask the retired.
An alternative is in place, in the shape of a relatively clean and regulated mutual funds industry. But to scale up, the industry needs to do three things:
Opinion in Outlook Money

Tuesday, June 17, 2003

A Matter Of Choice

ATM cards were free.ATM-cum-debit cards aren't. Some like the add-ons, others don't need it. All have to pay. Fair? A debate.
Gautam Chikermane
But I don’t want power steering in my car... Yes, I know it will make driving easier... Yes, I know it’s the latest technology... Yes, I know it’s the future, but I’m perfectly happy with my current status... No, I don’t need any upgrades...
SOUNDS FAMILIAR? Isn’t this a common refrain, no matter what the product? If it’s not cars, it’s something else. In this case, it’s your ATM card, that kind piece of plastic that revolutionised banking and made your life so much simpler. Even better, it comes free. As it should, you’d imagine–after all, it’s only a tool that lets you access your own money. But it looks like the party may be over: some foreign banks have taken the lead in charging customers for the use of their new-generation ATM-cum-debit cards. Did you say: ‘...but I don’t need a debit card’. You are not alone, but these banks are not listening. When your plain-vanilla ATM card lapses, like it or not, you’ll be handed an ATM-cum-debit card, and billed Rs 100-150 a year for its use.
For most of you who read this magazine, paying Rs 100-150 a year will not hurt. (On the other hand, it will add up to Rs 30 crore to the profits of some of these banks.) It’s, then, a matter of principle that we are talking about.
Story in Outlook Money

Saturday, March 15, 2003

Why break my budgets?

The middle class heaved a sigh of relief at the Budget 2003 proposals. Take a look at how it will affect your salary and taxes, retirement funds, home buying plan, shopping basket, investments in small savings, stocks and mutual funds.
Gautam Chikermane
NOISE–THAT'S how I would define the smart, 30-second sound-bites on TV by government officials, corporate captains, economists, analysts and tax experts following Budget 2003. But after an hour of this mindless cacophony, I find most of the common man’s concerns numbed into inertia. His critical concern–what should I do?–remains unacknowledged. In this package, we propose to help you steer clear of that dissonance and move into a quieter, more efficient (but less glamorous) financial harmony.
To give credit where it’s due, the finance minister has imparted dignity to the honest tax payer. By recognising "best tax compliance" and abolishing the discretion-based scrutiny, Jaswant Singh has indeed given the beginnings of respect, Samman, to the tax payer. This will also curb corruption, as will Singh’s announcement that all refunds will be directly credited to the taxpayer’s bank account. The rewriting of individual taxpayer’s form into one page is yet another step in the right direction. But in early 2002, when Singh’s predecessor tried this experiment, he ended up with a 10-page form, that needed another nine pages of ‘guidance notes’ to decode. Ironically, Yashwant Sinha called that outrage Saral. What will Singh do?
Opinion in Outlook Money

Friday, January 31, 2003

Where to invest in 2003

Ignore the prophets of doom. There's hope on the horizon. But only if you read the signs right.
Gautam Chikermane
I’m going down...down...down...down...
–Bruce Springsteen, Born in the USA, 1984
The rock star was talking about his heart, but 19 years later, this song could well be talking about investment returns. When I meet pensioners, they cry about lower returns from small savings and fixed deposits. The young cry about money they’ve lost in stocks. People in their forties and fifties are worried stiff that tax breaks may soon be history. Households are finding it difficult to balance their budgets at a time when salaries are frozen, if not cut; some have even lost jobs and are perforce dipping into their savings. Down...down...down...down...
What’s up? Hopes.
The dust of gloom that rose from the debris of the Twin Towers, and giant corporations gone bust, and the securities scam closer home has begun to settle down–and the signs of an economy on the upswing are there for all to see.
Opinion in Outlook Money