Are fixed income investors financially illiterate?

Published: April 14, 2016 at 9:11 am

Last Updated on

Any keen follower of personal finance space would have encountered their fair share of ‘why you should invest in equity?’ articles and ‘why equity alone is capable of beating inflation over the long-term’ arguments.  Things have come to such an end that fixed income investors are considered as not being financial literate. This kind of judgemental and holier-than-thou attitude is extremely unhealthy.

It is one thing if AMCs and product distributors act like that. It is their job to sell equity and it is no surprise that they do so. Should we investors also sit in judgement of others and assume fixed income investors require financial literacy?

When Saina Nehwal told ET that she prefers fixed deposits to equity, blogs, forums, Twitterati, magazines were all busy discussing why she needs to be educated. Well, it is her money and her choice! Perhaps we need to be educated about that first?!

Take a typical thread at Facebook group, Asan Ideas For Wealth, where a member wants information about an insurance product with an investment component. The rest of the members (me included) talk about why such policies are a bad idea, and why one should not mix investment and insurance. You know, the usual refrain.

Why should we offer unsolicited advice that choice X is wrong and choice Y is right, with a preconceived notion that we are trying to help? Why should everyone invest in equity?

Some, well many, in our country simply cannot stomach volatility. Yes, it would be a good idea for all of us to participate in the India story (assuming there is one), but it is a choice to not do so. AMCEquity penetration ought to be organic. Investing with borrowed conviction or upon persuasion is wrong per se and unlikely to last.

AMCs will disagree with me, but I think equity penetration ought to be organic. Investing with borrowed conviction or upon persuasion is wrong per se and unlikely to last.

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When someone is looking for ‘safe’ or ‘best’ investment options or want opinions on fixed income plans, I would prefer to suggest the use of a goal planning calculator with reasonable inflation value and the amount that one can invest. The one in this post, A Step-By-Step Guide to Long Term Goal-Based Investing gives the portfolio return after taxes necessary to achieve a goal. Perhaps this is unsolicited advice too, but I do hope it is not as judgemental. Or maybe we should leave them be.

In general, we need to think in terms of the return required. Only can then can we stop and think about what return the product that we are comfortable provides and if we need to get out of our comfort zone and wade in fresh waters. For many it is equity and for some, it is fixed income!!

Let us (the investor community) point each other to ways of making an informed choice without assuming that anyone who is not thinking like us is wrong. The rest is up to the individual.

Beating inflation is essential for long-term financial goals, however, there is no need for equity to do that! There is no need to obtain a real return to beat inflation! Read more: There is more to investing than obtaining real returns.

The syllabus for financial literacy is quite short and equity investing does not figure in it! At least not in my book. Before dubbing fixed income investors as financial illiterate, let us stop and ask if we are, in the first place.  To those who ask with an open mind, the answer could well be surprising!

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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  1. at last somebody not mocking not sounding superior and asking to put 80% of money in share market when you are 70+

  2. Even for fixed income investors, some products are worse than others. Traditional insurance products (e.g. whole life insurance) offers both lower insurance cover [as compared to a pure term cover] and lower returns [as compared to say tax free bonds or GOI bonds].

    The bigger problem in personal finance is this. One, a lot of financial products are badly designed to the extent that they hurt the buyer. This is akin to selling medicines that do more harm than good. Two, there are so many product choices in each category that can leave the user confused. How many people can tell the difference between Jeevan Saral, Jeevan Anand and Jeevan Akshay? Third, with the death of defined-benefit plans, individuals are forced to deal with risks they either do not understand or not prepared to deal with. These include inflation, longevity, running out of money etc.

    Saina is the most telling example of why personal finance is so difficult for most people. One would think that given her success and celebrity status, she would have had the best minds in finance helping her make savvy financial decisions that would leave her richer for having hired them. Alas! There is no such thing. When it comes to personal finance, each of us would have to plow through the muck of thinking through and making sane financial choices.

    Saina is lucky in that despite bad advice, she makes more money than most people and hence is not adversely affected. The average joe making 25k a month cannot afford such mistakes.

    1. Even if a bad product works for someone, who are we to tell them otherwise? What I hate most is unsolicited advise. Even though I love equity myself, I never go out of my way to put down people who invest in LIC products. Personal finance is well very personal in nature and people should only offer advise if asked for.

      We also need to remember that not everyone needs 15% return to reach their goals. If only 6% is enough for someone is reach his goal, why should he take the extra risk which is inherent with equity?

      Saina Nehal probably earns more than a crore every year. Does it really matter where she invests? With that kind of money, she could very well not invest anything at all and still fulfill all her life’s goals and fantasies.

  3. Making a informed choice in Fixed income options is not the same as following the herd and taking the jump.If someone makes a informed decision ,then good luck to him but for people who are not literate in personal finance ,being offered advice to other options should certainly be encouraged.
    Can’t just say people can do as they please and forget it.

    1. Another person’s money is another person’s money. I believe they can do what they want with it and am going to forget about it!

      1. sir, nowadays people are totally forgetting the policy you nicely put

        it is really stupid to say what saina sachin and kohli should do with their money or proclaim loudly that buying smartphone big car or house is wrong

  4. A high earner(in crores annually) may not be worried about his/her money growth,but a low income earner(in akhs annually)should worry about his/her money growth,just like donot follow any celebrity for ur flat/ investment,go right way,these celebrities are payed for advertisement,may be saina for fixed income investment advert.thanks for ur article,very good one,better devide ur money for fixed & equity ratio for better future.

  5. This is a wonderful post!! Personal finance choices are also a function of risk tolerance. If I have low risk tolerance, I am just better off sticking to FDs. It is also a function of corpus size. If my corpus is so large that my after tax returns from fd adjusting for inflation takes care of my needs for the rest of my life, then it makes sense to stick to FDs. It’s really a personal choice. To be fair I too used to look down upon people with minimal equity / high fds. But over time I have veered to the opinion that “personal” finance is a matter of “personal” choice that is best left to every individual to decide.

  6. Truly spoken. When someone’s getting a pension of close to 60k per month and has absolutely no liabilities, his health insurance is totally taken care of too, they don’t need to worry about equities and volatility at all.

    Some banker was pushing a family member for equities when there was no real need for it and they were insistent on just FDs and the like.

    Having said that, some people would genuinely like to know more. For that it might be ‘good’ (certainly not necessary) to both answer the persons question on fixed income and also provide links to further discussion on (dis)advantages of various schemes.

  7. Did any body give advice to Saina Nehwal by contacting her or are they just comments to the interview? I agree unsolicited advice is not good. But when somebody is just commenting to the news, then it is expressing opinion and as long as it is not abuse that should be fine. I can say that she should keep just cash at home or say put every thing in some upcoming startup. That is my opinion and I don’t expect her to even read it.
    I would have said debt funds are better as they are tax efficient. I am expressing my opinion and even if some body gets inspired by it I expect they to understand why I am saying this and get convinced. It is a discussion not advice.
    TLNR: Internet comment sections are not serious. We are just having fun and as long as there is no abuse it is fine.

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