Has your money started working for you ? | ET

 Panelists for the session: 

1. Sumit Rai 

    MD & CEO, Edelweiss

    Tokio Life Insurance

2. Feroze Azeez 

    Deputy CEO, AnandRathi

    Private Wealth Management

Host for the session: Ms. Pallavi Arun Verma (Economictimes.com)

The date for the session: 26 November 2020

An e-session was held by Economic Times (ET Wealth) in collaboration with Edelweiss Tokyo Life on "Unlocking your Money's True Potential".

The session began with the host introducing us to the Panelists, Mr. Feroze having done his PG Diploma in derivatives, delivers guest lectures at various B- Schools.

Ms. Pallavi said that as we are approaching the end of the year 2020, we remember this year for all not so good reasons.

Host: What is the scene in the mind of investors?

Sumit: 2020 has been an unusual year specifically if seen in terms of the savings. Not too much optimism is been seen what to do after the crisis has occurred, with respect to the Life Insurance and Savings point of view.

In the starting 3-4 months of the year, the Savings and Term Insurance was at a good place.

This year has forced people to recalibrate their plans. 

They could be self - employed people for 3 - 4 months and all of a sudden things changed for them.

Some of the basic mental frameworks have changed this year.

People have understood that "Emergency Money" is important.

Earlier only Medical Emergency was considered but now people understand Emergency can be of different kinds. But now a lot of money is needed to be saved and is required to be kept for such situations which occur unexpectedly, like losing Job.

Now, we have to do what is required. People are becoming more aware. 

Ferozez: A lot of  "decluttering" is required. Like in Diwali, we have things at home which are not required so, we give them to other people. Also, we need to give away things that are not required in our Portfolio. We need to review our Portfolios. Over a period of time, people buy products from different investors.

1. We need to fix a review.

Diwali is the best time to introspect.

2. It should not be over - diversified.

You need to make Money focus on certain things.

He further says that 

Corona will soon be forgotten. We need to write down the learnings. 

What has this year taught us?

He further adds that HN1, Retail have remained out of market. Deriving learning and writing them down is important. 

Host: How to evaluate the full potential? 

Sumit: Focus is on "Risk Appetite".

Who I am ?

What I am saving for ?

How much risk I have to take?

Look at it regularly.

Very often it needs to be checked.

This year has made people realize this.

Why we are saving?

What is the risk we want to take?

Host: This means that once in a year, we need to evaluate and set goals to help us achieve the targets we have.

If we see from 2010-2020 (2020 goals), then we don't see good figures. Investors had depressing targets. The market numbers are seeing it is below 10%. 

If we change (2010-2020) to (2009-2019), the game will change.

Ferozez: In the last 20 years, for NIFTY, there has been good news. 

There has been bad news as well. If u get just 8-9% of the returns.

Host: What role does Insurance play?

Sumit: What is the Life Value?

Insurance is important. Everything will depend upon Influx.

He shared his personal thought that 

1. Insurance creates a disciplined way of saving. You put some money away. It is especially important for the middle class.

As we go up the classes, other incomes increase. Investments also come in place.

At the Base level, Insurance is important. Health Insurance is very critical.

Giving an example, he explained that 

People do not mind paying 50K for their car insurance but they do not pay for the Insurance of the bread-earner. 

Host: Stigma is that people do not want to talk about death.

This year i.e. 2020 will be a game-changer?

Ferozez: The game had started changing 2-3 years ago.

Two things:

1. Increasing Education

2. This year, now a lot of information is available online.

Host: People don't buy insurance - 

because of long term insurance.

How to ensure that long term plans do not derail during a crisis?

Ferozez:

1. People should n course. 

Their product should be disciplined. It should make people pay on time, should be designed in such way.

The corpus is to educate people - to think long term.

2. Either you should be self-disciplined or you should buy a disciplined product. 

3. Anybody who looks at DATA - you will do better.

Eg, inequity, looking at DATA, helps you to make better decisions.

We should look at 20-30 years of data.

People speaking the right language are important.

Host: Can Insurance be customized as per age and other factors?

Sumit: 

Insurance can serve 2 purposes: Protection and Savings.

1. As foundational planning, 

having enough to safeguard, your money should be saved for the next 5-10 years.

There are multiple ways of customizing-

1. Lump Sum amount-

If I am not there, then my spouse has to be taken care of.

2. Insurance - 

Base Insurance + Put some toppings on it like we put on Pizza

- to customize your requirements.

When you want your money back?

How are you prepared for accidental incidents?

Over the last 10 years, the scenario has changed with respect to people's mindsets.

Host: What should be an ideal investment strategy if you start late?

Ferozez: If you start early,

It has compounding power.

Equity will be the backbone of strategy.

Equity and Real Estate are both important.

In Real Estate, we see negative figures over last  5 years. So, equity is better.

The Gold Sovereign bonds have tax free benefits.

What products you do not have to buy that thing should be clear in your  mind,

so half our job is done that time only.

- Product Selection 

        - Have clear Monitoring Mechanism.

Host: There are myths around Insurance-

the factors which determine which policy is for me?

Sumit: Insurance is misunderstood.

Insurance - has become complex. So, customers get confused. 

Having said that, insurance provides so many options.

We need to do a little bit of research.

Traditionally, we can do research. 

Biggest myth is that Insurance is for death.

But in reality, 90% of the country's insurance is sold for - 

long term - 

- for house

-for son's education 

- for wedding

First reaction of people is that - why I need Life Insurance. I'm good.

Biggest myth - is that - it's totally for - protection.

but it's actually  for  - even more purposes.

Insurance is mandatory thing for individuals.

Lot of customers say that they have a lot of assets.

So, many different use cases are there.

In many big business families, insurance is there used wrt Inheritance purposes also.

In many cases, women's rights. are protected. Eg - LWPA

Insurance has many use cases. People do not know why they need a particular instrument. 

People - need to have good management. 

Need to have clearly defined objectives. Goal setting is important. It needs to be done properly.

Ferozez: People buy and sell product without context.

People prioritize marriage over retirement. 

They save for their child's marriage and they don't save for their own retirement and then in this current scenario, children do not take care of their Parents post retirement. 

So, you need to plan for retirement. This is important.

How much of my salary -

- You have to spend - what is left after investment. 

First invest then what is left out of that, spend for current.

Host: Medical needs are important. 

Sumit: Goal setting is important.

Saving for - 

- Retirement

-Child Education

-Marriage

There are some additional things to it - 

The New generation is moving towards more Consumption Mindset.

Big Vacation ( not before 7-10 years. So, save for it) 

Saving for consumption is important.

Consume and Spend -

The savings rate has fallen over some 2-3 years. 

Confidences have gone down.

Old savings trends are there.

New behavioral changes are there.

Host: Please suggest current scenario with respect to Investment.

Sumit: 

1. Goals are important.

Milestones and Landmarks.

What you want to save for?

- Equity is an important part.

There are many mutual funds. 

How much money you want to keep liquid or how much money you don't want to touch at all.

Looking at the health issues, you should plan accordingly.

How much Emergency Cash you want to keep?

Risk Appetite -

Goal setting is a good starting point.

Host: - How to become debt free?

Ferozez: To become debt free, you will have to arrange debt in descending order.

1. Identifying and arranging the current debt.

Eg- Home Loan is a good debt.

Today the rates are low.

It is also saving you the rent.

Floater account - 

We can categorize debt as Bad debt and Good debt.

There is some spending that can't be avoided like groceries and electricity bills.

If you can cut down your discretionary spending to zero, you will be able to repay the debt soon.

You need to find out which bank is penalizing you so that you free yourself from the debts soon.

Host: How much money we need to put aside as Emergency Cash?

Sumit: In the present scenario, 6 months of monthly spending (we should put this much amount aside as the Emergency Cash).

Reasons -

1. Medical Emergency

2. Sudden Job Loss (Disruption / Business shut down)