Choice is good, but too much choice freezes us. If you have ever been in the market for a financial product, you know that this is true. To help readers cut through the clutter, we run two league tables at Mint. We ran the 8th edition of Mint 50, the 50 investment-worthy mutual funds that Mint curates, on 13 February 2017. Sometime mid-year 2017, we will do the 5th edition of our health insurance ratings—the Mint SecureNow Mediclaim Ratings. It’s a lot of work. We open ourselves to criticism on our final listing. So why do we work on such ratings? The Mint mandate has been clarity. We have prided ourselves on not reproducing press releases. An average Mint story will explain the background and give the context.
When we began to think about clarity in personal finance we ran into two streams of thought. One, readers want the events in the news decoded in terms of their lives. How do inflation numbers affect our lives? Why does a high fiscal deficit number become a cause of worry? Decoding the events, regulations and new products in a manner that helps readers understand them better is one part of the work of a personal finance journalist.
Two, reader feedback has told us that they need help in choosing products. There are several ways in which this can be done. We have external experts, who we trust are unbiased, and who answer reader questions. We decode new products to make sense of the over-kill in the prospectus documents. And we do league tables for those who want a short list of products to choose from. We chose to focus on mutual fund and health insurance league tables. Our view is that the mutual fund product in India is one of the best ways for a retail investor to manage her money for a variety of needs. It is also an efficient and safe way to get equity exposure.
Next on the list was health insurance. Reader after reader wrote asking us to suggest a good policy. Our interactions with individuals on TV shows, public investor education events and conferences showed the same thing—people feel the need for a good plan but have no way to read through the fine print to understand what the policy actually promises to do. A medical insurance policy is a very complicated product to evaluate because the cheapest is not always the best, premiums change with age and the amount of cover a person takes, and data is difficult to get. We tied up with SecureNow Insurance Broker Pvt. Ltd. to help with mapping policy attributes and analysis.
The league tables are now created. But how should you use them? Even after all the work that is done in creating these tables, there is a substantial amount of work that you need to do. The Mint50 list has 50 mutual funds. You need to use these to create your own portfolio of six to eight funds. A good portfolio will have a mix of funds that looks after your money needs in the future rather than targeting just a ‘high’ return. You’ll have to learn the difference between debt and equity. You’ll have to map your future needs to funds that you choose for your portfolio of six to eight funds. You’ll have to remember to monitor your portfolio once a year and move out of funds that fall off the ‘investment worthy’ tag. It’s a lot of work. It is easier to hire a planner and hand over this work to him for a fee. You can still use these tables to gauge the funds chosen and argue about why a certain fund is in your portfolio or not.
Using health insurance ratings is even tougher. You will need to figure out how much cover you need, whether you need an individual cover or a family floater and then map your age to the league table. Don’t choose the first plan you see. Open up the tables and look at the finer details. The plans are graded on the benefits they offer—you may personally rate a benefit higher than somebody else. One person may not give that much importance to cost caps and may want a cheaper plan. Again, having chosen the plan, you do need to revisit the ratings in the future to see if competition and innovation has changed the choice set on offer.
Creating the league tables is just half the work. You need to do the other half— whether it is in buying the products yourself or evaluating your financial planner. There are no shortcuts in finance.
League tables help consumers of financial products cut through the clutter to get a short list from which they can choose products. But league tables are also important from a regulatory point of view. League tables make sense of the masses of disclosures financial firms throw out to meet regulatory norms on disclosure. Most of this disclosure is incomprehensible to consumers and often the most relevant features that are important to a consumer are buried in legalese or fine print. League tables created by third parties—not the firms who manufacture or distribute these products—can sieve through the disclosures and pull out the relevant details. And then compare across firms. But regulators need to pay attention to potential conflicts of interest in the league tables. Is there a direct or indirect benefit that the creators of the league tables get from firms that get top ranks? The work ahead for regulators is to make the disclosures machine readable to make the harvesting of key features easier.
Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, and on the board of FPSB India. She can be reached at firstname.lastname@example.org