The wider the choice, the less is our ability to select. This is why most savers find financial products confusing and difficult to choose
At a Moneylife Foundation seminar, which was packed to capacity, Debashis Basu, editor, Moneylife, explained the five major asset classes available to Indian savers and the hundreds of products in each class. Therefore, savers move away from these products and keep their money in the bank, even though the value of their money gets eroded by inflation. Average savers require just a few products to meet their needs, at different stages of their life.
Without choices, life would be dreadful. But there is a limit beyond which choice becomes counter-productive. In fact, several studies have shown that we get paralysed, or make the wrong choices, when we have too many options. This is all the more important in financial products.
When you buy consumer durables, you can see, compare and test; also, well-known brands usually assure a quality product; unfortunately, the same does not hold true for financial products. In the case of financial products, too much choice is definitely harmful. Brand names also mean nothing, because even some well-known banks indulge in horrendous mis-selling.
Mr Basu asked: “if you have to choose from 3,000 actively traded stocks, over 700 mutual funds, 344 life insurance products, 145 health insurance products, what would you do?” He elaborated: “there are portfolio management schemes, bank fixed deposits, bonds and corporate deposits. The list can go on and on.” Many of these products are untested, said Mr Basu.
To make ‘better’ financial choices, savers approach financial advisors, financial planners, wealth managers, IFAs, etc. Whichever channel they choose, the intermediaries earn money through commissions and churning on the choices they offer savers. It is not necessary that the choices offered are in the best interest of the saver.
So what should a saver do? “All you need is just two or three equity schemes, a few fixed-income products, a term life insurance, a health plan and some tax-saving instruments. Tune out the rest and you will do much better,” Mr Basu explained. This takes care of 90% of your financial needs for a safe financial life, leaving you with enough free time to enjoy the fruits of your savings. The effort and the resources required to choose the right product is immense; generally, the average saver could be put off by numbers.
The government has disclosed that accounts of an unknown number of people who filed their income-tax returns online were illegally accessed. Replying to an RTI query, the finance ministry said a process of ‘multifunctional authentication’ has been designed and will be in place shortly to prevent illegal access to e-filers’ accounts.
It, however, said no instance of ‘hacking’, which implies a breach of security, has happened or reported in the case of e-filling website.
“There have been instances when authentication details of certain class of e-filers have been obtained by persons from sources other than the website and then the passwords were reset and the e-filing account accessed,” the ministry said.
The Forward Markets Commission (FMC), has permitted re-materialisation /closure of applications of e-series investors on the crisis-hit National Spot Exchange (NSEL). This will allow more than 33,000 NSEL investors to get the commodity back in physical form to sell and encash the money.
FMC said the auditor Choksy and Choksy had not found any default as the stocks of commodities matched those in demat form under the e-series contracts. It further said metals in demat form includes gold (910kg), silver (46 tonnes), platinum (19kg), copper (62 tonnes), zinc (61 tonnes), lead (49 tonnes) and nickel (17 tonnes).
Meanwhile, the Bombay High Court, while hearing a class action suit filed by Modern India, an NSEL investor, has agreed that borrowers of NSEL should be asked to make payment first.