Are fixed income investors financially illiterate?

Published: April 14, 2016 at 9:11 am

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.

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!

Do share if you found this useful

Use our Robo-advisory Excel Template for a start-to-finish financial plan! Now with a new demo video!  More than 700 investors and advisors use this!
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 2600 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 600 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
My new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, if we had to groom one ability in our children that is key not only to money management and investing but for any aspect of life, what would it be? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parent’s plan for it and teach him several key ideas of decision making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Did you know? We have more than 1000+ videos on YouTube to explore! Join our YouTube Community!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored three print books, You can be rich too with goal-based investing (CNBC TV18), Gamechanger, Chinchu Gets a Superpower! and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements, write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps