Look beyond the hype before you pay

For most Indian households, succession planning is closely tied to real estate. The property bug usually bites early because the ultimate aim is to ensure that you at least leave your kids with a roof over their heads. And accumulating property becomes a proxy for saving for the next generation. Well-intentioned as this may be, it is slightly misguided.

Real estate demands money, time and physical effort for its upkeep and all of this can become increasingly painful and tiring with age. Worse, an asset intended to provide security can turn into a succession nightmare when children have settled elsewhere, have no plans to return and must manage or sell the property remotely.

Some seniors are recognising this early. They are selling, downsizing or redeveloping their homes, using the proceeds to improve their retirement or converting illiquid property into financial assets that are easier to manage and divide. Wealth works best when it’s fungible. But the key takeaway here is not that every retiree should sell their home. It is that parents should avoid becoming asset-rich but cash-poor merely to provide a roof for the next generation may neither need nor want. In this excellent story, Shipra Singh speaks with seniors about what prompted them to rethink their property holdings and how doing so improved their quality of life while simplifying succession planning.

In the same vein of warning against letting compelling narratives replace financial judgement, Jash Kriplani writes about the IPO euphoria as more issues are expected this month. For retail investors, IPO investing demands extreme caution. The excitement around growth stories and potential listing-day gains can easily turn investors into speculators and IPOs into lottery tickets.

Unlike established listed companies, IPO-bound businesses have no track record of exchange disclosures or trading history. Investors must rely largely on the red herring prospectus (RHP) to assess the business. The story handholds investors through a handful of sections that can reveal red flags around corporate governance, financial quality, the reasons for listing and how the IPO proceeds will be used.

These sections can also help determine whether the valuation being sought is justified. It is important to understand, though, that beyond the IPO frenzy, investors may be better off investing via mutual funds, where you simply outsource stock selection to an index or a fund manager who has developed the required skill set.

And on the subject of applying extreme caution when the track record is limited, is this brilliant story by Ann Jacob on foreign universities setting up campuses in India. These campuses promise global degrees at a fraction of the cost of studying overseas, without the burden of steep living expenses, visa uncertainty and recurring travel costs. But parents and students must look beyond the pull of a foreign university name. Most of these campuses are still in their infancy, with limited placement data and little evidence of how employers will value their degrees compared with those awarded at the parent campus.

Then there is the question of whether they can offer the same global exposure that comes with studying abroad: an experience that can play a huge role in shaping one’s outlook and building alumni networks. The story explains what families should verify before signing up and the questions they must ask to ensure they can extract maximum value from a foreign degree, even when it comes at a much lower cost. While the opportunity seems promising, look beyond the hype and allow these institutions time to establish credible academic and employment track records.

On insurance this week, Aprajita Sharma looks at term insurance policies designed specifically for students pursuing higher education. Term insurance is a life insurance plan that pays a specified amount, known as the sum assured, to the beneficiaries if the policyholder dies.

Linking large liabilities to insurance is not new. Term insurance is popular among home loan borrowers. A typical cover linked to a home loan is a decreasing term insurance plan, where the cover reduces over time as the outstanding liability falls. A similar hook–of covering huge liability through life insurance– is now being used for students, particularly those funding higher education through hefty loans. The product itself is a standard term insurance plan, although it may come with several add-ons. But the need for it must be assessed carefully. Students typically have no financial dependents, so term insurance at this stage may be redundant. However, if a student’s sudden death could leave the family with a substantial loan or place it under severe financial strain, a term insurance plan may be worth considering.

And finally, an important story on making a will. Both awareness of and action on succession planning remain woefully inadequate. The importance of making a will also remains understated, even though dying without one can create considerable friction in a family.

As other aspects of our lives turn digital, online platforms are making estate planning simpler and more accessible. In this story, Aprajita Sharma examines their offerings and costs. Most follow a layered approach: from basic guidance for those taking the do-it-yourself route to complete handholding through identifying assets, drafting the will and getting it registered. While digital platforms can help, you may also want to consider a good estate-planning lawyer if you need a better handhold and follow-ups, specially if your assets are widely spread or you are dealing with complicated ownership structures. The objective is to account for all your assets, establish their correct ownership and plug any gaps so that the will is comprehensive. In that sense, the real choice is not simply between online and offline. It is about getting the right expertise so that the will can actually be implemented when the family needs it most.

In Money Guru this week, Jash Kriplani spoke to R. Sivakumar, chief investment officer of Axis Mutual Fund, who sees pockets of opportunities across large-, mid- and small-caps even in a range-bound market. Sivakumar also explains why he believes that growth is showing signs of revival.

That’s all from the Mint Money team this week