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Few investment options for senior citizens

For most Indian investors the second half of 2008 is fast turning out to be a nightmare. There are very few worthwhile investment opportunities that readily commend themselves. For those renewing their deposits or switching mutual fund investments from one scheme to another, the present juncture is not particularly opportune either.

There are of course several categories of investors with their own motivations and size of savings. It is a telling commentary on the investment scene that even after 17 years of financial reform, there are not many investment avenues targeted at special categories of investors.

For instance, for one generation of savers — many of whom are just retiring — there was hardly any scheme in those days that enabled them to buy an apartment or a house by paying in instalments so that on their retirement they not only have a shelter but also a valuable hedge against inflation. Three decades ago, home loans were hard to come by. Commercial banks on their own were not in the business. On the other side, the real estate market was vastly different from what it is today. The plethora of choice that prospective home buyers have today was simply not there.

The point is that those who did not have the opportunity to buy a home through savings — repaying a home loan is after all an excellent form of saving — are now in the retired category and automatically become ineligible for a long term loan. Whether it is renewal of health insurance or getting a loan to buy a car senior citizens are at a disadvantage. The only way the mainline financial system favours them over others is the extra 0.50 percentage point commercial banks offer on their deposit rates.

If senior citizens do not get a fair deal, there are other categories such as the so called high net worth individuals (HNIs) who are in a predicament. There may be several savings and investment schemes targeted at them but very few in which they can invest on the basis of a reasonable evaluation and be confident of the outcomes.

There are several reasons why the time is not right for practically all types of investors. The steep fall in the stock markets is a major reason. The double digit inflation, on top of a distinct slowdown in the economy, is another. Less recognised but definitely a potent contributing factor is the growing complexity of certain financial products. Finally, customer service in its true sense has deteriorated. This adds to the investors’ woes.

The sharp decline in stock prices has naturally eroded valuations. The Sensex peaked at 21000 in January. It had come down to 13000 two weeks ago. With a 36 per cent fall in the benchmark index in just over six months Indian stock markets have earned the opprobrium of being among the worst performing in the emerging markets category. Last year, when the indices zoomed, they were among the top performing exchanges.

Ordinary investors who had invested when the markets were rising are apt to be confused. Should they book the loss and reinvest in other stocks or through mutual funds? Or, if they choose to stay away from stocks, where will they deploy their depleted funds?

Such dilemmas are common and arise because no one has read the stock markets right during the recent boom and fall. On their way up stock prices were supported by plenty of hype. Investors probably never received the right type of advice. Now that stock markets are at their lows there are fewer investment analysts and portfolio managers sticking their necks out.

Even mutual funds — the officially recommended stock market option for ordinary investors — have not read the markets right. This is seen not merely in the sharp drop in the net asset values of once top performing schemes. Many funds have not invested their entire corpus and are keeping significant portions in cash or other liquid instruments.

Stock markets’ woes are no doubt compounded by perceptions of a slowdown in India and abroad. Nevertheless, even if the economy grows at over 7 per cent during 2008-09, it should be considered commendable. The political climate is not favourable.

Two other factors that already weigh with investors will become potent in days to come. One, the growing complexity of some financial products on offer. Typically, portfolio management schemes such as equity-linked debentures lack clarity and are not easily comprehended by even investors with some knowledge of finance. The offer documents confuse more than they clarify.

In one typical circular letter, a leading private bank promises to deliver returns benchmarked to the movements of the Nifty. There is a promise that both on the upside and the downside, investors will be protected. In fact a certain minimum return is promised. There are no meaningful clues as to how they will manage all this. There is vague reference to “some complex strategies” they will employ. It is not surprising that those selling these products are blissfully unaware of its nuances.

Customer service has always been a key factor in influencing investors to choose a particular option and remain with it. In a computerised environment, personalised customer service is at a premium in most commercial banks.

Again, even basic products such as savings account need to be supported by personnel who have an understanding of a bouquet of related products. Many banks and institutions, while pursuing universal banking, face an acute shortage of talented manpower. Especially in areas concerned with stock market operation, demat for instance, the computer cannot take the place of a reasonably informed staff member.

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