Three wise men, the trinity, three dimensions, hat-tricks and triple sundaes. The number three finds resonance everywhere, in mythology, in fables, books, films, everyday life and now, in Mint’s anniversary issue. Read about the third-generation tragedy in business, evolving India as seen from the NH3, real life stories that mirror ‘3 Idiots’, the magic of the number three and much more.
3 things to run for, and 3 to run from your money in 2010
Your faith in the financial sector will be seriously tested in 2010. The prelude just got over—markets rose globally on the empirically expected post-crisis bounce. A falling dollar and money for free in the US has bathed assets worldwide in a fresh wave of risk-happy cash. Other factors are now making themselves felt. A beginning-to-rise dollar and US President Barack Obama fixing blame on banks that played roulette with public money and gorged on private profit they did not deserve could be the beginning of a second dip in global markets.
Going digital: Technology is finally having a say in how you invest. Stockxpert
Yet, a big blowout will have to await the repricing of money in the US. As long as money is cheap, the party will continue in some form or the other. To exit the market is to lose on the long-term bounce that equity gives your portfolio, but to time the market is suicidal. So, what are we looking at in 2010?
What to watch out for
The financial products that an average person needs are mostly already in the market in India. The big challenge is to make transactions smooth and seamless. It is difficult today to get a full net worth statement from any one website or service provider, though there are small companies working in this direction. The big change will be firms offering processes that make it easier to move your money across products and accounts, maintain and manage the investments and to see your financial life all in one place without having to pull out 10 different files.
Online MF platforms: Technology is finally having a say in the way you buy, sell and manage your mutual fund (MF) accounts. Say you invest in five schemes across five different fund houses, you need to fill in five forms, five cheques. Next, you will get five account statements that you need to keep a track of. Consolidating investments is just next to impossible in this structure. Online platforms such as fundsindia.com, fundsupermart.co.in and the soon-to-be-launched Powermf.com make it easier for you to track your investments. Open an account just the way you open an email account, link your bank account with it, submit relevant documents like a copy of your permanent account number (PAN) card and you’re all set to invest in MFs.
Mobile banking: Cash has begun the journey from the wallet to the cell and 2010 will see more changes to expedite this journey. With banking regulator, the Reserve Bank of India, hiking the limit that can be transacted through the mobile gateway to Rs50,000 every day, the regulatory approval for this is in place. Not just bill payments, you can book tickets and make all other transactions that a debit card can do.
Stock exchanges and mutual funds are looking at the mobile gateway to reach investors in both urban and rural India. The National Stock Exchange and the Bombay Stock Exchange are planning to launch a trading platform where brokers (and investors later) will be able to execute orders for mutual funds products over their mobile phones. Mutual fund houses have already begun work on a mobile transaction platform.
Insurance buying and maintaining is yet fairly clunky in India. Fully online today are comparisons between premiums across portals such as www.click2insure.in, www.policybazaar.com and www.insurancemall.in. Fully online buying is not yet in place since insurance policies require underwriting procedures, which often need the transaction to shift gears to an offline mode. Typically, you can buy life, motor, health, house, travel and personal accident insurance online. Expect more such services and a growing focus on comparison shopping in insurance products in 2010. Look for plain vanilla insurance products to be sold online directly by insurance companies themselves at a fraction of the off-line cost.
What to be wary of
In the thousands of products on offer in the marketplace, there are just a few that really work for you. Buying plain vanilla investment, insurance and home loan products will be a winning strategy in 2010 since the scope for mis-selling is lesser when the product you buy is simpler. This year will be noisy in product pitches and here are three products to stay away from.
Overseas funds: Your mutual fund does not just invest in Indian markets; it can also invest abroad. In 2007, the Securities and Exchange Board of India (Sebi) raised the overall ceiling for investments in foreign securities by mutual funds to $5 billion. Twelve international funds were launched in 2007.
Ironically, when foreigners were rushing to put bucketloads of money into India, there were funds taking our money to markets that were sitting on the edge of a cliff. Over the past five years, the Sensex returned 21.22%. The US’ Dow and Japan’s Nikkei lost money in the same period. Given the current global growth outlook, don’t buy a regional diversification argument. Keep it home and keep it growing.
Guaranteed insurance products:
Insurers have begun rolling out a new product suite that is in sync with the new cost caps that the regulator had instituted last year. Costs were capped at 2.25% of the return for tenures more than 10 years. This means the charges in the policy cannot drag the return your fund earns by more than 2.25%. But there are products that are able to escape this cap. An extension of capital guarantee products, these policies escape the cost caps because the regulator has allowed them to charge extra for the guarantee. An analysis of the guarantees shows they keep your returns low and costs high, though the advertisements will seem to offer you a lock-in at the highest end of the net asset value. Stick to a term policy for a life cover and avoid all Ulips for now.
Loans with teaser rates: The year 2009 was one of teaser loans. These loans offer a low and fixed rate of interest for an initial one to three years after which the applicable interest rate, linked to the bank’s prime lending rate, comes into play. It started with State Bank of India’s 8% fixed rate for a year home loan offer, and soon others followed. RBI is concerned that some borrowers could be caught wrong-footed by the twin forces of a planned hike in the teaser rate to a more realistic level and that level itself rising due to an inflationary economic regime.