January 25, 2010

On the occasion of 61st  Republic Day

MFs and insurance companies should come to the expectations of youth

By Sai Prasan

India will celebrate the 61st Republic Day on January 26, 2010. Several political and social changes took place in the country since the enactment of the Indian constitution on January 26, 1950. The democratic process has helped in spreading the political awareness among people which led to the social transformation and development.

Compared to political awareness, the financial literacy among people has been negligible. Perhaps, the need was not felt since the country was having a controlled economy till 1991. But, the opening of economy has thrown several new challenges specially for the working class.

The people specially youth, working with the new economy related sectors like IT and ITES, for the first time in the post-Independent and globalised India have witnessed such a large scale of salary cuts and pink slips throughout the country due to the global recession. This kind of scenario was never witnessed in the past because India was having a Socialist economy till 1991  where the jobs were by and large protected and the concept of Pink Slip was unheard.

The nature of employment in the liberal economy is uncertain in the recessionary kind of situation like the country is currently undergoing.  The governments do not offer any alternative source of income to the retrenched employees for their livelihood in our country like USA and other developed countries offer to their unemployed and retrenched population. The government not offering any security network to the unemployed and retrenched people makes the personal finance more important. This has made it necessary for all to have financial literacy because it helps in taking decisions in the issues related to the personal finance.  
Hence, the financial services players – banks, insurance and mutual funds – need to play a larger role in spreading financial literacy among the retail investors and youth about the better returns while protecting the principal of their investments in different schemes. Also, the financial players need to evolve a mechanism where the salaried class specially the Youth can have an alternative source of income, when he or she is out of job in the time of recession, from their investments in a scheme.

Currently, none of the financial services sector has such a scheme where an investor need not  pay for a period of time when he is out of job and gets a montly income to support him or her family. The popular Systematic Investment Plan (SIP) of Mutual Funds  does not have a scheme for a fixed monthly income. A couple of  insurance companies have monthly income scheme which is more or less a retirement plan. Similarly, the banking sector also do not have schemes which can provide monthly income to the investors in a crisis situation.

The financial services players need to note that there is lot of scope to cater the needs of the young population. And, it is easy to reach this segment of the society as it is increasingly getting internet savvy. The financial literacy can be provided to them through portals and other web forms like e-Groups, Facebook, Twitter and mobile technology based platforms which is being extensively used in the USA and other developed countries.

Some of the major players in the Mutual Fund space have identified the potential of mobilizing funds through web and they have created Online Investment platforms. The fund houses including Reliance Mutual Fund and UTI Mutual Fund and others have Online platforms and they are getting more than five per cent of their monthly business through this new platform. Taking a cue from this, some of the mid and small fund houses are also planning to come out with Online platform to tap the potential young investors.

Here, it is important to note that the young investors are comparatively have a less e-security concerns and they are increasing using the net for getting information and making direct investments in the financial market through net. This trend of online investment is likely to go up as the Audit Bureau of Circulation (ABC) figures for the first half of the financial year 2009-10, from April to September, 2009, shows that the circulation of all the major national dailies including business newspapers has  dipped by an average of 25% because the young population is shifting to the web space to get information.

Considering the above factors, the financial service players specially fund houses and insurance companies should work for the financial literacy among the youth. And, use technology – internet and mobile – to reach them. They need to convince them to make investments in different schemes to meet the needs of the uncertain times like the present recessionary situation.

They should identify the needs of the young and meet their expectations accordingly by introducing innovative products. Both fund houses and insurance companies can explore the possibility of bundling their products, if they can not offer such plan on their own, which can offer monthly income to the investors in the bad times.