Budget 2017: Need solutions, not products
Why the Varishtha Pension Bima Yojana 2017 is not a solution for Senior Citizens
By Narayan Krishnamurthy
First the announcement, then the cabinet approval and finally a mention in the Budget speech; The Varishtha Pension Bima Yojana 2017 will be spoken about as a wonderful financial solution for senior citizens. It may also make several people get a wrong sense of security and safety. But, finally, it is a product and not a solution for the financial uncertainty and worries of the senior citizens. A similar scheme was launched by the then NDA government in 2003, which was open to people over 55 years old with a monthly 9 per cent returns. Fourteen years later, it is old wine in new bottle.
I always view financial products targeted to any section of the society as something which will at best spur emotional outburst and not address the actual problem. Senior citizens need financial security in a manner such that their pension is linked to inflation and does not erode their retirement savings or impact their quality of life. No financial product actually addresses this aspect. Products like the Varishtha Pension Bima Yojana 2017, will actually be used by risk averse youngsters, who will suddenly part their savings to their parents and make them claim the guaranteed higher interest rate.
May be I am imagining too much, but basically it will steer investors towards savings avenues that may not necessarily suit them in the long run. To diversify is to reduce risk and to carefully allocate assets is the best known way to achieve this. Savings and investment options should be seen as solutions rather than a set of products that offer or don’t offer a tax sop. This change in investing approach is what, I believe, will be the budget’s most important impact or the act by any government to ensure we move towards a society where investing in financial instruments goes up and not be trapped with savings.
Truth is, you need a mix of financial products to solve financial problems. Read Outlook Money, especially the My Plan and section and you will realise that the best of financial goals can be met by a combination of financial instruments. Do not be myopic with tax benefits or fixed returns – chances are you will be able to sleep better and make better use of your money. Time has come for people to seek professional help, do not look for a quick fix solution, where in the possible savings of few hundred rupees, you actually lose out a lot more by way of inefficiently deploying your money.
It’s always good to seek professional help; institutions like insurance companies pension funds and mutual funds create products with specific objectives and constraints, construct and manage portfolios every day, and are transparent in their operations. You cannot assume a single product from any of these entities will solve your financial problems. You will need to move from product focus to solution focus and buy a portfolio of these products than go in for one that assures a guaranteed return or offers tax rebates. I rest my case with an example I often share: I need a size 44 shirt; don’t push me a size 42 because it is available on sale or huge discount. A great salesman may manage to sell comb to a bald man, but what use is it?