February is no longer the same. A mixture of rising incomes, home loans and spending-linked tax-saving options (such as school fees) make the Public Provident Fund (PPF) and National Savings Certificate (NSC) investments more for continuation of the account rather than the need to get the Rs1 lakh 80C deduction. But the February habit is so strong that I find myself still fussing over investments at this time of the year, going through the routine of crediting the accounts and getting the passbooks updated. But where did they go? I left them right there in the green folder, has it chewed them up? Anybody who has moved them is so dead. Ha, there they are. When did the green folder become pink? And what’s this? My NSCs. Hello. These were dead three months ago—I need to make the trip to the post office. And, ah, that’s the cashless mediclaim card I was looking for. The scrabble for one set of papers leads to many other forgotten bits of paper and work. We all lead untidy lives—yes even the so-called experts—and need a periodic nudge to put things back in order again. And I take great solace from the story of Daniel Kahneman. But more of that later. This year I used the mental note firmly engrained in the minds of the Indian salaried that February means finances to do a financial housekeeping exercise. Five things to do this February.
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One, check your bank account nominations. You may find old accounts sitting there without a nomination in place. The level of financial literacy among the urban mass affluent has grown along with incomes and the new accounts normally have the nominations in place. Also, bank staff now help with firm nudges toward filling the nomination form. But some of the older accounts may be without valid nominations. Joint accounts escape getting a nomination since the account is mostly “either-or”. Good idea to put a nomination even in a bank account that is jointly held. Check nominations in mutual funds and beneficiaries in insurance policies. This is significantly more messy than a simple form that you fill with the bank. But worth starting the process with either your planner, agent or directly with the mutual fund or insurance company.
Two, check for an address change that has not got carried out. The address changes that shout the loudest—bank accounts, phones, gas connections—get done in the first rush of work around a house change. Others get pushed back to do “later”. Later, of course, means never. Check for old addresses in mutual funds, insurance policies, funds, credit cards, clubs.
Three, check insurance cover—life, medical, house, car. Check if the addresses are valid, if some detail needs a change. Check location of cashless cards and whether more than just you know their location. Good time to audit if you need more cover or you are financially secure and may not need the life cover anymore. Check if you need more medical cover. Check if you need to update the gadget, jewellery and other possessions list in the householder policy.
Four, check validity of credit cards, driving licence and passport. I found one card that expires this month, my driving licence that died two years ago and a passport that is on the last stages of life support, it dies next year.
Five, and while you are at it, audit your portfolio. Managed funds should be doing at least 5-7% above the benchmark return. If the broad market index, the Sensex or the Nifty, has given a 15% return, your managed fund should do at least 20% to make the investment worth the fees and the bother of managing the portfolio of funds. This is good for a large-cap fund. Mid-caps and sector funds should do more—only then is the higher risk worth taking.
All this should keep us busy till next February. And then we can begin again. There is a great career waiting to happen for somebody who will come and take this grindingly boring (but like all things boring, grindingly important) work off the hands of the urban mass affluent. I know I’d be willing to pay for this service.
OK, the Daniel Kahneman story. For those who don’t know, Kahneman won a Nobel for his use of psychology to explain individual economic behaviour. Kahneman, through his work, knew the typical financial errors that most people make and should have been the last person to fall into those behaviour traps. But when he filled the risk profiling form that his financial planner (a US lady I met some years ago) gave him, he committed all the errors documented by the stream of economics called behavioural finance. When she asked him why, he said: Because I am human and we are conditioned to make these errors despite knowing better.
Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money and can be reached at email@example.com