Staying informed

eco-timesA behavioral pattern observed when it comes to senior citizens’ personal finance and investment habits is as follows:

  1. When they make investment decisions on their own, they tend to be very conservative and safety conscious. Left to themselves, they choose risk-averse, stable products which place safety above profits.
  2. However, when they are approached by product sales people from financial services with product pitches, they tend to take decisions that are completely opposite from the above – going in for the promise of high returns without taking caution or doing due diligence. Sales people often find it easiest to sell bad and ill-suited products to senior citizens just for this reason.

Why this dichotomy? How does a person who generally has a conservative outlook to finances easily fall prey to such sales talk?

Honestly, I do not know the answer to these questions, and a study about this behavior is not the objective of this article. Rather, I think we need to be aware of this pattern and recognize if we or a friend or a family member fit into it.

More importantly, we need to identify how to avoid this pattern of behavior. And for that, I believe the answer lies in staying informed.

When we are working in an office, we get a chance to interact with different people during the course of a day. It provides us with an opportunity to get to know both about genuine new opportunities as well keep away from scams and bad products.

After retirement, such opportunities are scarce, and this is one of the main reasons, I believe, that senior citizens make incorrect financial decisions.

Hence, it is especially important for our retired elders to make reading about personal finance and economics a regular part of their news intake.

This can be done quite easily actually. There are quite a few publications that recognize this and provide useful articles regularly.

For example, the Hindu Business Line had a great article by B Venkatesh a couple of weeks ago about how to save and invest in the post retirement period of one’s life:

http://www.thehindubusinessline.com/features/investment-world/personal-finance/how-to-adjust-retirement-portfolio-for-inflation/article4178597.ece

I also noted another article by Dhirendra Kumar on Value Research Online a few weeks back along similar lines:

http://www.valueresearchonline.com/story/h2_storyView.asp?str=21516

Specifically, I would recommend two weekly publications that every senior citizen should at least skim through regularly:

  1. The Hindu might be staple reading for local and national politics coverage, but when it comes to personal finance, the Hindu Business Line’s Sunday edition’s Investment world takes the cake. This 3-4 page spread does admirably well in general, but more so while addressing the needs of post-retirement finances.
  2. The Economic Times might be heavy reading on a daily basis, but their Monday edition comes with a personal finance tabloid supplement that is very good and worthy of perusal.

Just by getting these two issues – Sunday issue of the Business Line and the Monday issue of ET – will keep one well informed about the happenings in the personal finance – good and bad.

Happy reading!

This question has been answered by Srikanth Meenakshi of our financial advisory team.  Write to advice@oldisgoldstore.com if you would like us to answer your question.

Thinking of returning to India – A house should be your first priority

Home-Tax-BenefitThere comes a day in the lives of mid-40 year old NRIs when they realizes that their parents are getting old and can no longer fend for themselves.  To many this comes as a rude shock when during one of their trips to India, they see that their parents have significantly aged since their last visit. At this time, two primary options come to mind.

Option 1:  Take the parents back with them.  In many cases, when it is a single parent, this is a viable option, especially when the other parent has just passed on.  This helps the surviving parent to be with close family during a time of grief and the change in scene may also in some ways ease the pain.  The flip side is of course is that the parent may feel uprooted from familiar surroundings and friends and rebuilding a life half way around the world can be quite challenging. Additionally issues with insurance and medical coverage etc will need to be worked out.

Option 2:  The NRIs return to India to stay with the parents.  This would mean that the NRIs will have to give up the life they have build in the foreign country and restart from scratch in India. Again a lot of challenges involved.  Of these one big challenge is getting a house in India.

In earlier times, if you were to sell a house in the US or gulf and come back to India, you would have enough money to buy a same sized house here with lots of money to spare.  Those days are long gone.  Now a house in an Indian city costs much more than a house in most other parts of the world!  However, with some foresight and planning, a decent house or apartment could become a reality for you.

a.  Start looking for a house now.  Everyday, the real estate prices are going up, so the sooner you begin the better.
b.  Look for options outside the city with proximity to industrial zones and hospitals. Options outside the city limits are often much cheaper than those inside the city, especially when you book your apartment at the beginning of the project (when rates are at the best).
c.  Check out bank loan options.  Every bank in India provides NRIs with attractive home loan options.
d.  Many gated communities are coming up with schools and hospitals within the complex.  These could be ideal for your children and your ageing parents.

If your parents are not too old yet and you have not reached the mid-40s yet, now would be a good time to buy the house. That way, a good home will be available when you decide to come back to India.

Question related to Company FDs

Q: Can you throw some light on the pros and cons of investing in company FDs ?  Also please let me know what you think about the following companies in terms of ratings and other service attributes
1. Shriram Transport Finance
2. Deewan Housing
3. JP Associates

Ans:  Thanks for the question. Before we answer it, a quick primer on the subject matter of your query – company fixed deposits – for the uninitiated.

companyfdMost people are very familiar with fixed deposit products offered by banks – both private and public. These FDs are secured by RBI up to Rs 1 lakh per deposit per bank branch, which means that to a certain extent the investor money is protected in such cases.

Company fixed deposits, on the other hand, are offered by Non-banking finance companies or by public limited companies, and not by banks. These too offer a fixed rate of return depending on the tenure of the deposit. However, they are not secured by RBI or any other regulatory body. Due to this inherent risk in the product, such deposits are offered at a higher rate of return compared to bank FDs – typically 1-3% higher.

As an investor, we need to be prudent and choosy in picking the company deposits that we invest in – one cannot sacrifice security in search for higher interests nor can we ignore better returns by being completely risk averse.

And that brings us to the question – as the questioner correctly points out, we need to look at the ratings of a company and other service attributes before choosing where to invest.

When it comes to ratings, we should note one important thing – there are different kinds of companies offering deposits and not all of them are rated. There are NBFCs, government entities, and manufacturing companies (publicly listed companies) offering deposits. Of these, ratings firms such as CARE and CRISIL provide ratings only for NBFCs and government entities. Publicly listed manufacturing companies’ deposit products are not rated.

One can see the ratings of these companies and more at MoneyControl’s Company FD page:

http://www.moneycontrol.com/fixed-income/company-deposits/

As you can see, Shriram Transport Finance and Deewan Housing (DHFL) are rated. JP Associates (manufacturing conglomerate) is not. Shriram has a rating of CRISIL FAA+ and ICRA MAA+, while DHFL’s rating is CRISIL AA+ and Brickworks FAAA.

(Explanation of ratings here – http://www.moneycontrol.com/news/fixed-income/credit-ratings-ratingsdebt-instruments_653221.html)

Regarding service quality:

At FundsIndia.com, we offer all three of these deposit products although JP Associates has been a rather recent entry into the fold. So, we have a bit of experience to comment on the service quality offered by these firms.

In our experience, Shriram’s service has an excellent track record. We have rarely, if ever, received customer complaints in this regard, and even when we did, we have been able to sort out the issue with their staff easily.

We do not have as much of a track record with DHFL or JP to comment confidently.

My advice would be to go with a good service provider such as Shriram even if their interest rates are marginally lower than the other two.

This question has been answered by Srikanth Meenakshi of our financial advisory team.  Write to advice@oldisgoldstore.com if you would like us to answer your question.

Managing finances during golden years

This post is by Srikanth from the investment advisory team.

Hello.

My name is Srikanth, I run a company called FundsIndia.com in Chennai. We are an online investment services company specializing in mutual fund investments.

At the outset, my thanks are due to the folks at OldIsGoldStore (Sanjay, in particular) for giving us the opportunity to communicate with this esteemed audience.

I, along with my colleague Vidya Bala, plan to write here periodically. We’d like to share with you our thoughts regarding financial issues that are important to senior citizens.

It would be an understatement to say that we approach this task with some trepidation given the fact that we are writing to folks who have had long, successful careers. Many of you have been in banking and financial services and are much more knowledgeable on finance than us. Hopefully, we’ll be able to provide you with some useful information about what’s happening currently.

We would also be happy to answer questions from you regarding any personal finance issue that you may have. If you have a question for us, please write to us at advice@oldisgoldstore.com.

We would like for you to let us know especially if you are considering investing in some new product that is being offered to you. We have a pretty good understanding of the different products that are available in the market today, and will be able to tell you whether some product is good and whether it is suitable for you.

This is especially important since it is a well-observed fact in our society that elderly people are more vulnerable to being victims of financial scams. I myself have been witness to such incidences and have prevented people from buying wasteful products.

scamIn fact, there has been a scientific article recently that shows how the process of ageing adversely affects senior citizens and how it makes them more vulnerable to scams. I would like to draw your attention to this article published recently:
http://meadvilletribune.com/ourhealth/x1685968624/Why-seniors-may-be-more-vulnerable-to-scams 

As the article cautions, seniors need to be especially vigilant about what they are being sold, and should always take trusted outside counsel before committing to anything. It would be useful to make it a habit to say ‘No’ to anything at first, and then re-visit later. This is especially true if one is being pressured to buy/invest in something stating that this is a ‘once in a blue moon/life time opportunity’.

Hopefully our counsel will be of some help to you in this regard and would keep you safe.

In future installments of this series, we hope to write on more topics of interest in terms of where and how to invest. If you’d like for us to write on any specific topic, please do let us know!