Financial

Simplifying nominations can boost financialisation

Indian securities market regulator SEBI has recently sought public comments on a consultation paper that seeks to comprehensively revamp the entire process of transferring assets to the nominees on the death of the investor. It seeks to remove hurdles and standardise the process so that the transfer to nominees can happen in a few weeks (the dream is the transfer happening in a few days of applying and God willing even that will happen eventually as the system stabilises). The paper also deals with providing access to the investor themselves in case of their incapacitation (unfortunately many such cases are coming up as longevity of Indians increase due to advances in medical science) . This is a giant step towards making Investments in Indian securities market convenient and easy and will aid in spurring the ongoing process of financialisation of household investment assets.

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Unclaimed assets: Create searchable databases

Give a gift worth lakhs to your loved ones this new year without costing a penny to you. Visit iepf.gov.in, click on “Search unpaid/unclaimed amount” under the “Services” tab, and enter their names in the search box and discover unclaimed shares in their name on the #IEPF website. The probability of discovering lost treasures for your loved ones is much higher if they are born before 1970.
IEPF has recently changed its search functionality to display potential unclaimed amounts/shares based on the inputted name without requiring any more information. Unclaimed shares/dividends worth Rs. 52,000 crores are with IEPF. Similarly large amounts (bank deposits – Rs. 35,000 crores), Insurance-Rs. 25,000 crores, Inactive/unclaimed Mutual Funds (Rs. 18,000 crores) , Provident fund/Small saving schemes (amounts unknown) exist throughout the financial sector. The Finance minister has already announced an integrated portal to ease the process of searching and claiming such amounts.

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Creating a balance sheet for every Indian

“The Account Aggregator System should enable the easy compilation of a Balance Sheet for every Indian” – was the clarion call provided by Mr. K V Kamath as he went to the heart of the matter in his characteristic style. This was amply borne out by Harsh’s experience in providing financial planning services to his household help Sapna and her family. Such experience can be repeated with millions of Indian families if the potential of the Account Aggregator System(#AAS) is fully unlocked. #AAS has been ably helmed by RBI and is a great example of what inter regulatory coordination (RBI, SEBI, IRDA, PFRDA & GST) can achieve. Despite its undoubted potential a few steps (outlined in the article) by the regulators can unlock the full potential of AAS and enable it to live up to the goal set by Kamath Sir. It will also assist the investment advisory profession to shed it’s elitist tag and strive towards the goal of a financial plan for every Indian.

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Weigh the risks of EB-5 citizenship route

Originating in Africa, Humans migrated to the remotest corners of the earth primarily to find food, avoid the threat of deadly predators or the danger from domination by other human species or due to dramatic changes in the climate. There is an intriguing scientific theory that unforced migration is motivated by simple curiosity and boredom, what is often called wanderlust. This is credited to a variation in the human DNA (DRD4-7R) now dubbed the “wanderlust gene”. Present in about 20% of the population, it impacts dopamine levels, increasing the person’s tolerance for risk taking including exploring new territories. Those willing for (or seeking) greener pastures in other countries have a larger capacity for risk taking. But can that innate larger risk taking ability justify staking your life savings in an “risky investment for citizenship” plan like US’s EB-5. Harsh’s article in Business Standard today. Your feedback most welcome.

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Appeal to ‘slow mind’ to wean investors off F&O

Can you solve this puzzle : A bat and a ball together cost ₹ 1,100.
The bat costs ₹ 1,000 more than the ball.
How much does the ball cost?

If your answer was ₹ 100, that´s incorrect.
The right answer is ₹ 50.
Nobel Laureate and behavioural economist Daniel Kahneman cites this example in his book, Thinking Fast and Slow, to introduce the concept of the ´fast mind´ (which provides intuitive answers without conscious deliberation), and the ´slow mind´ (which is supposed to deliberate and endorse or reject the fast mind´s intuitive answers).
The fast mind´s immediate answers can be frequently wrong.
The slow mind is lazy and prone to biases.
Yet, with the right training, the slow mind can be tutored to amend the fast mind´s intuitive answers.
So what does this interesting puzzle have to do with weaning Individual Indian investors away from speculating in Futures & Options ? Read Harsh’s article in Business standard to know more..

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Index fund or ETFs? Compare total cost

Harsh’s article in Business Standard on how a fixation on expense ratio has led to a preference for exchange traded funds over comparable index funds among some investors. In the case of ETFs the NAV is only of guidance value and the market price paid by investors buying the ETF is higher than the NAV and the investors selling the ETF is lower than the NAV. The difference between market price and the NAV imposes an additional cost. Besides, there is brokerage fee, which amplifies an ETF´s tracking error
Hence the tracking error based on market price is way higher than the tracking error of comparable index funds. The incipient movement towards Fund of Index funds across asset categories has been the inadvertent victim of the hastily introduced tax amendment targeting debt funds in the last budget. Hopefully we should see this corrected in the next full budget and index based FoFs will play a pivotal part in passive investing in the future.

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Disclosing conflict of interest builds trust

Regulations require that Investment Advisers fully disclose any conflict of interests they have while advising their clients. Far from being an hindrance, a transparent disclosure of the conflict can assist in building the trust of clients. Disclosure of “no conflict” in situations where investors have inbuilt perceptions of conflicts of interest such as referral to Insurance specialists/law firms also help in building trust. Harsh’s article in Business Standard…

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Investor education can´t be left to finfluencers

Finfluencers have a large influence on investors which can be used both for educating them but also for misdirecting them. given their larger than life impact on investor education some form of regulation is a must. Many learnings are available from the experiences of Pranjal Kamra a “Finfluencer” with very large fan following whose firm has a RIA License from SEBI. Harsh’s article in Business Standard on how relatively relaxed regulations coupled with a strict scrutiny of those with large number of investor complaints may be one possible route to bring the “finfluencers” within the regulatory ambit but retaining their ability to educate investors. Its a complex issue and Harsh is aware there is no magic bullet solution so this is a suggestion that can be considered along with many others that the regulators must surely be examining.

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An innovative approach to domestic staff loans

Middle class households are used to giving advances against salary to their domestic staff who do so much to make their day to day life easy.
spurred by a challenge thrown to Harsh by Harsh’s spouse Harsh proposing a solution that can transition these advances (and it’s repayment) to India’s formal credit system giving a big boost to availbility of formal credit to trustworthy low income domestic staff. Please assist in influencing the policy makers to consider the suggestion. It will convince his spouse that he can actually make sensible suggestions in household matters as well :). Harsh’s article in Business Standard today

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Have realistic expectations from your investments

Clients are always amazed when we tell them that looking at how the investments have fared for them is not the right way to review their continuance or otherwise. Using cricketing analogy Harsh explain why looking at moving long term performance of the investment vis-a-vis its peers is a much better way to review the continuance of any investment – rather than the performance experienced by them. In fact the focus on reviewing investments (reviewing the performance of the selected batsman) takes the focus away from reviewing the performance of the entire plan itself. Harsh’s article in Business Standard.

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