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Insurance

The Financial Expert

I don’t know about you, but whenever I read news items that report that such and such billionaire had his entire wealth scraped down by, say, 14% due to the crash in the stock market, as a sensible and sensitive bloke, I instantly become sad that the bugger was worth so much in the first place. But being the gentleman I am, I also let out a silent prayer for him that next time around when the share prices fall, it better be drastic enough to wipe out at least 90% of his holdings.

Anyway, these being volatile times in the stock market, what are the other financial investment options for the middle-class folk? We analyse a few:

Provident Fund

The working of the provident fund scheme is, in a nutshell, the beauty of collective living: you contribute X amount from your salary and your employer chips in with Y amount, and the government collects them and uses them to a larger social good, like paying salary to provident fund employees who are otherwise unemployable elsewhere.

You are allowed to withdraw money from your provident fund account for only genuine reasons, like your death. You may think this to be extreme. But you have to agree the government is strict in this matter for a practical purpose: It does not want you to be wasting your money. Especially since when it is precisely there to do the same thing (rim shot).

But if you are a monthly-salaried working person, the employment provident fund scheme remains the most secure investment option. It is so safe that you alone can withdraw the money that too only when you are probably able to produce a gun or a dagger with a threat to unleash it on the officers unless your money is returned. Which they may if the gun is, I don’t know, attested by a notary public.

Fixed Deposit

Do you remember that you, as a kid, used to place peacock feathers between the pages of a book in the hope that they would somehow magically yield another feather by morning? We strongly suspect that your childhood peacock feather fantasy to be the guiding financial strategy of most banks when it comes to fixed deposits. Because when you invest in them you basically get back the same amount. Perhaps that is why it was named fixed deposit to start with.

Of course, you stand to get a decent return if your fixed deposit is worked out on a compounded rate of interest. But let us not kid ourselves here, if you and your banker are anywhere near capable of understanding how this compound rate of interest is calculated, you guys would probably now be a scientist in NASA and not reading this. So basically you have to make do with the simple rate of interest, whose formula, as you would doubtless recall from your school maths, is PNR/100, and you can work out this PNR by looking it up on your train ticket.

Insurance Policies

There are many types of insurance policies, but as an investment option the popular ones are mostly two:

  1. A)    You agree to pay a fixed amount every month/quarter/half-year and after a period of time you get a well-meaning call from the insurance company that your policy is ‘lapsing’ as you had not paid the premium amount for the last few months/quarter/half-year. You will ask them why did they not inform you earlier itself. They will say they had sent regular intimations. It is then you will realise that those irritating envelopes from the insurance company that you cast aside without even opening them were those blighted intimations. Or at least this is what usually happens to me as I forget to pay the premium after some time. I am sure this will happen to you, too.
  2. B)     You pay a huge amount upfront on a policy that promises considerable return after 10 or 15 years and generally forget about it, till one day you realise that you had parked some money in some insurance company and you begin searching for the policy document in your cupboard and, voila, you will unearth your (unpaid) credit card bill from 2001 which heaven knows why you are retaining till today. And then after considerable rummaging, during which you and your spouse blame each other for the total lack of upkeep, you will finally manage to locate the policy document and luckily the maturity date is still five years away. It will be five years away even when you see it five years later. It always is. Nobody I know of has ever encashed a long-term policy.

Insurance industry, or for that matter the entire financial market, works on the larger prudential principle — this is the first lesson at the IIMs — most people are suckers.

As you can see, the popular investment options available to the common people don’t allow you to get rich. In the event, stock markets continue to offer the best hope. To be sure, you may not become rich overnight on the bourses. But by the dint of your patience and perseverance, stock markets can help you realise the ultimate middle-class dream, that of seeing a few billionaires become middle-class overnight.