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A guide to securing your child’s future


In the constant swirl of daily life, parents grapple with the timeless question: How can we secure our child’s future? With education costs soaring and parents becoming aspirational to send their kids abroad for studies, financial concerns echo louder than ever.


This Children’s Day, we tell you how to invest wisely in mutual funds for your child, especially if you should start investments in your child’s name or your own.


Investing in mutual funds in the name of the child (minor)


As a parent, investing in a child’s name presents operational challenges. You cannot start a mutual fund in the name of your minor child through many online platforms, such as Groww, Zerodha, and 5paisa.


Moreover, only select fund houses offer the online option through their website. For most, investors have to visit the branch of the fund house to start a mutual fund in the child’s name. The process involves documentation, including the parent’s/guardian’s proof of the relationship with the minor and the minor’s birthdate.


However, the complications don’t end there. The child needs to have a bank account, as the redemption proceeds from the mutual fund will go to that account only. This may pose a risk when the minor gains access to money upon reaching adulthood, especially if they don’t know how to manage money.


Also, the transition from minor to major involves paperwork, including filing a MAM (minor attaining majority) form with the AMC requiring the minor’s KYC, PAN, and bank account details.

All in all, a cumbersome process.


That said, starting a mutual fund in your child’s name can be considered, especially if you are prone to dipping into your investments now and again. Why? Investing in your child’s name is a potent emotion and motivator. It can be a strong deterrent whenever you have impulsive urges to withdraw money from your kid’s fund.


Let’s talk about the taxation aspect


Until your child is under 18, realised gains from the fund will be clubbed with your income and taxed. Even dividend income gets added to your total annual income.


Once they turn 18, your child will be required to pay taxes on the capital gains in case of any redemption from the fund. However, it is noteworthy that annual income of up to Rs 3,00,000 is exempt from tax under the new tax regime.


Choosing the right option


The dilemma extends to where to invest. Most of us search for children-specific mutual funds. On paper, the logic appears sound. But read between the lines, and you’ll notice that most of these funds are a clever marketing ploy.


Let’s illustrate why we say this: A typical children-targeted fund is hybrid in nature – it holds equity and debt instruments – and doesn’t allow you to redeem any money before five years. On the other hand, a regular hybrid fund has no lock-in period, not even a week’s.


What you should do


Create a separate folio, i.e. start a mutual fund investment in your name and make your child a nominee. This will offer a practical solution to the challenges of starting a mutual fund in the child’s name.


Source- Valueresearchonline

Mutual funds in demats be damned


When investing in mutual funds, you have two options: receiving your units in a Statement of Account (SoA) or your demat account, both of which are digital, eliminating the need for paper certificates.


The SoA option offers a more traditional way to hold mutual fund units. In this case, you deal with the asset management company (AMC) directly. The AMC issues a statement indicating your fund holdings when units are allotted.


On the other hand, in demat form, a Depository Participant (DP) like Central Depository Services and National Securities Depository holds the mutual fund units. Demat units can be bought and sold through brokers, or your DP.


Which mode is better: Demat or SoA?


Earlier, demat accounts allowed you to view all your investments in one place. However, having a consolidated view of your investments is now also possible through the CAS (Consolidated Account Statement), and one need not necessarily have a demat for the same.


The table below highlights the differences between mutual funds held in a demat account vs SoA:


As it can be seen, for most investors, SoA is the preferred choice, offering a simpler and more straightforward way to hold mutual funds.


What you should do


Switch to the SoA option. They help you save money, are faster and more flexible.


  • If you have a distributor handling your money, call them and ask if you hold funds in a demat account . If that’s the case, get it converted to a Statement of Account (SoA).
  • If they try to sell you demat accounts, change your distributor. (They might be earning a brokerage).
  • Only if you buy ETFs (exchange-traded funds) should you have a demat account. For all the other funds, SoA works best.


How demat account is converted


Step 1: Submit a signed Rematerialisation Request Form (RRF) to your DP (the entity that manages your demat account). You’ll get this form from the DP itself.


Step 2: The DP will verify the form and send it to the RTA, a body that maintains mutual fund records.


Step 3: The RTA will transfer your investments to SoA.


That’s pretty much it. You just need to file the RRF by having your Aadhaar and PAN next to you.


By changing to the rather-convenient Statement of Account (SoA), you’ll earn higher returns and stop paying unnecessary fees for a start.


Source- Valueresearchonline

Four ways to save tax on long-term capital gains


The reintroduction of long-term capital gains tax of 10 per cent on stocks and equity funds prompted investors to look for ways to reduce their tax liability. So, we show you four methods to reduce tax on your long-term gains made from equity and equity-oriented investments.


Use the Rs 1 lakh exemption wisely


Investors are allowed a basic exemption of Rs 1 lakh every year on long-term capital gains (LTCG) from the sale of equity shares or equity-oriented fund units.


So, if you don’t need to withdraw all your investments at once, consider spreading out your withdrawals over multiple financial years. This way, you can reduce your tax liability.


For example: Let’s say you have Rs 2 lakh long-term gains from equity shares. You can cash out Rs 1 lakh in a given year to reduce your tax liability. Try to wait until the next financial year to redeem the remaining Rs 1 lakh to avoid tax on it. If you cash out all at once, you’ll owe Rs 10,000 in taxes [(2 lakh – 1 lakh)*10 per cent].


Consider loss realisation


Long-term capital gains can be used to set off both short-term and long-term capital losses . If your long-term capital gains, after applying the basic exemption, exceed Rs 1 lakh, consider setting off some losses at the end of the year. This will effectively reduce your tax liability.


For instance, imagine you have long-term capital gains of Rs 1.4 lakh and capital losses of Rs 40,000. In such a case, you have to pay taxes on LTCG, as shown in the below table. But if you choose to set off the losses against the gains, you won’t owe any taxes. See the table below.



Choose the right investment products


To reduce capital gains tax, your investment choices matter. For a debt-heavy portfolio, opt for products with debt-like features, like equity savings funds , which are taxed favourably like equities. Avoid investing directly in debt or debt-oriented funds, as they incur higher taxes (especially burdensome if you’re in a tax bracket over 20 per cent).


For a mixed portfolio of debt and equity, both face different tax treatments. Consider switching to equity-oriented hybrid funds, which offer exposure to both asset classes with tax treatment similar to equities. For a 60 per cent equity and 40 per cent debt portfolio, equity hybrid funds with over 65 per cent allocation to equity can help you maintain a lower 10 per cent tax rate on your gains.


Section 54F (for house purchase)


While not applicable to everyone, if you happen to be planning to build a new house or invest in a house property, then Section 54F can assist in minimising your capital gains tax. Here’s how:


Step 1: Sell a non-property asset (can be anything like stock investment or gold sale)


Step 2: Use the long-term capital gains to:


  • Buy a home (ensure you purchase it a year before or within two years after you have sold that non-property asset)


  • Construct a home (ensure you build the home within three years of selling the non-property asset)


Please note that starting from April 1, 2023, the maximum exemption limit under this section is capped at Rs 10 crore.


These are some smart ways to efficiently reduce your tax burden on long-term capital gains. Choose the option that suits your needs to ensure you don’t pay unnecessary high taxes. Remember, money you save is money you earn!



Source- Valueresearchonline

This wealth manager says even risk-takers must invest in debt funds. Here’s why


Known for his insightful investment nuggets on X (formerly Twitter), Kirtan Shah commands a substantial fan following on social media. As managing director of private wealth at Credence Family Office, which manages over Rs 10,000 crore in assets, he is associated with the wealth industry. But that’s not all.


As part of the education and training industry, he heads two ventures, FPA Edutech, a training provider of international certification programmes, and Ambition Learning Solutions, a leading player in the BFSI training industry, both of which he co-founded several years ago.


Shah, spoke to Moneycontrol’s Maulik M about how to design a simple portfolio and the importance of staying invested for the long term.


When the equity market is at a high, many investors say they want to wait to invest. What would you say to them?


This is a well-known fact and there are enough data studies to show that every time you invested at a market peak but stayed on for a longer time, your experience would have been the same had you invested at any other time.


Very specifically, if you’re a sophisticated investor, and you understand valuations are expensive, or you understand there is a strong resistance (technicals), and you want to wait, that’s a call you can take. But 99.9 percent of retail investors don’t really have the capability to judge this. If you are confident in the India story, and believe in at least 6-8 percent GDP growth roughly, plus a 4-6 percent inflation, I don’t see a reason why markets will not deliver about 12 percent CAGR (compound annual growth rate).


As a retail investor, you have only two things in your control. First, how much you save, and second, how long you stay invested. You can’t predict the return you will make or what (large-, mid- or small-cap, or value or growth style) will work in the markets in the next few years.


So play to your strengths, invest as much as you can and remain invested for as long as you can.


If someone has Rs 10 lakh today, where should they invest it?


First determine your risk profile and then, design an asset allocation strategy. So if you’re an aggressive investor, you would want more money in equities, if you’re conservative, you would want less. But both investors will still need other assets, too.


For example, if you are an aggressive investor, I would still suggest that you have 20 percent in fixed income and gold depending on what you read about the macros.


I am always asked why an aggressive investor must also have fixed-income investments. Even if I don’t talk about how that reduces risk without hampering returns, I would say, when the market falls, say, by 20 percent, most of us don’t have any additional money to invest. At such times, you can use this fixed income portion to buy markets at lower levels.


More specifically, I have a very simple formula.

  • In equity, you don’t need more than four or five schemes, irrespective of your investment amount, whether Rs 10 lakh or Rs 10 crore.


  • Split this equally between large-cap, mid-cap and small-cap funds, because you don’t know what will work in the next few years.


  • Make sure that your investment horizon is at least 8-10 years.


  • Also make sure that you have a good balance between fund houses that follow the value style and those that follow the growth style of investing.


  • Then, some part of your portfolio will definitely be performing irrespective of the cycle that you are in.


  • For fixed income (for an aggressive investor), you can put money in a medium-duration fund and a credit risk fund. Currently, we feel interest rates have topped out and that medium- and long-duration debt funds will do well for the next few months. But when rates are low (24 months from now), credit funds will start doing well. So that gives balance to your fixed income portfolio.


In equity, why not simply go for flexi-cap funds, instead of a mix of large-, mid- and small-cap funds?



In India, typically flexi-cap funds work like large-cap funds. On the other hand, when you invest around 33 percent each in a large-cap fund, mid-cap fund and small-cap fund, then the risk of this strategy is as good as a large cap fund (based on standard deviation) and your returns are as good as for mid-cap funds. On a risk-adjusted basis, it’s better than investing in flexi-cap funds, with your eyes shut. There are hardly two or three flexi-cap funds that are genuinely flexi-cap.


What do you think of gold as an investment? And what about investing in it today?


For me, gold is a tactical bet. I hear a lot of us saying that we should have gold. But what is going to significantly change in your portfolio with a 5-10 percent allocation to gold? Nothing.


If you look at the last 12 years, gold’s dollar return has been 0 percent, and the rupee return has been 3.5 percent, and that’s only because the rupee has depreciated. So, what problem is gold really solving in your portfolio? To me, it is an extremely tactical bet.


Is that bet going to work, today? I think, yes.


Gold works very differently in terms of dollars and in terms of rupee. First, gold in dollar terms—whenever the dollar depreciates, gold will go up because then people buy more gold. Are we expecting the dollar to devalue? The answer is yes, because we think interest rates globally have topped out and when rates start falling, you will see the dollar depreciate. So in terms of dollar denomination, we think gold will do well.


But I’m not sure how well it will do in rupee terms. India is expected to be a far stronger emerging market (EM) currency versus others in the EM space. So if the dollar were to depreciate, the rupee would go up. This will be counterproductive for gold returns in rupee terms.


So your bet depends on both these factors, and they are both at pivoting points right now. So a retail investor should not take this bet.


Do debt funds still make sense after the loss of indexation benefits in 2023?


As a retail investor, I have multiple other options. I can go for corporate deposits and fixed deposits in small finance banks. Now, we can argue that interest rates are going to fall and so long-duration funds will do very well (give capital gains). But that is not written anywhere. So these funds are not meant for retail investors.


But for a sophisticated investor, I think long-duration funds are still the most appropriate option, provided you understand the interest rate cycles. Making around 8-8.5 percent is no problem at all if you can give it two to three years and understand the cycles. Debt funds give many advantages to a sophisticated investor—ease of liquidity, multiple categories to choose from depending on risk capacity, and scope for diversification. So, such investors should still stick to debt mutual funds.


What are some of the biggest investment mistakes to avoid?


  • Looking at the last three years’ returns and investing in the market.


  • Investing based on some data points given on media or social media.


  • Diversification does not mean having 20 funds. Many investors keep adding newer funds in the name of diversification.


  • Lack of discipline. Most equity fund SIPs (systematic investment plans) close in two years’ time.


Source- Moneycontrol


Investing needs time and attention


Some five years ago, I wrote a column on an American startup called ‘Long-Term Stock Exchange’. Before I tell you anything more, I’d like to point out that the venture has, for all practical purposes, failed. However, the idea was genuinely interesting. An entrepreneur named Eric Riese decided to find a way to cure short-termism amongst equity investors, so he came up with the idea that people would invest for the long-term if their holdings in a stock automatically increased as time went by.


Of course, the holding can’t grow so he modified the concept and decided that the voting rights for each share should go up. He decided to set up a stock exchange where this kind of automatic adjustment would happen to companies that were listed on it. This sounds like a weird concept, and it is. But America is a weird country, so not only did he get venture funding for this exchange (from no less than Marc Andreesen) but also got permission from the regulator, SEC, to set up this exchange. Needless to say, nothing much came of this startup exchange. Still, it’s better to have tried something fundamentally innovative which tackles a difficult problem and then fail, rather than failing at yet another copycat startup as so many others do.


The underlying problem is perhaps the most serious one in equity investing. Many, perhaps most investors have an unbelievably short-term perspective. They have a definition of long-term which is ludicrously short. If you listen to social media discussions on the issue, you will find that opinions are divided, ranging from a high of seven months to a year down to anything that is not day trading. Even the government’s official definition is just one year!


Some years ago, Fidelity Investments conducted a study in the US to find out what kind of investor accounts had the best returns. It was observed that the greatest returns came from investors who had neglected their investments for several years, or even decades. Interestingly, many of these investors had passed away a long while back – the ultimate in do-nothing long-term investing. Even though one cannot recommend this as a strategy, it’s nonetheless an interesting finding.


In recent times, I have felt that one of the root causes of investors not venturing into long-period investments was simply not wanting to do the work in understanding a business. When you invest for the typical few days to weeks, you just need to have a view of the stock movement, it’s enough to just have a view on the stock price – there is no need to know anything about the company itself. However, if you do invest for a year or years then you have to have a view on the company, the sector, the underlying business, the management – in fact, everything about the business itself.


There are two problems with this. One, investors do not have the time. And two, in this age of sentence-length media and social media, they do not have an attention span. This sounds like the same problem but it isn’t. It can take days to understand the basics of a business and even when they have the time, I find that the patience required to understand a company is simply not there. Most of the investing world is complex and if anyone gets used to the information style of Twitter or Instagram, then understanding complex things becomes almost impossible.


For investors who want to invest in a long-term, fundamentally driven way but cannot spare the time, it’s best to outsource the attention and the research to a mutual fund, or a stock advisory platform like dvmint.com. If that’s all you want, it’s fine. If you want to use these as a stepping stone to do more yourself, then that’s even better.



Source- Valueresearchonline

NRI Investment in Mutual Funds – Process, Do’s & Dont’s


Can NRIs Invest in Mutual Funds?


Absolutely, non-resident Indians (NRIs) have the opportunity to invest in Mutual Funds in India. The Indian government, in conjunction with the Securities and Exchange Board of India (SEBI), has put in place specific guidelines and protocols. These ensure that the investment process is smooth and transparent for NRIs. This initiative aims to encourage overseas Indians to participate in India’s financial growth through the Mutual Fund sector.


How Can NRIs Invest in Mutual Funds in India – Detailed Process


Starting with KYC Compliance


Every NRI desiring to invest in Indian Mutual Funds must first clear the Know Your Customer (KYC) process. This process involves several documents. These documents primarily are proof of identity, address proof, a recent photograph, and, importantly, a PAN card copy.


Institutions offering Mutual Funds often have set processes for KYC, which could sometimes involve added documentation or even direct meetings. Therefore, it’s a good practice for NRIs to familiarise themselves with the chosen institution’s specific KYC requirements.


Setting up an NRE/NRO Account


To proceed with investments, NRIs need to hold an NRE (Non-Residential External) or NRO (Non-Residential Ordinary) bank account in any Indian bank. These specially designed accounts allow NRIs to maintain and manage their funds in Indian Rupees, which further eases the investment and returns process.


An added piece of information: NRE accounts come tax-free and have provisions for repatriation, while NRO accounts have certain taxation aspects and come with limited repatriation options.


FEMA Declaration – A Mandatory Step


When making foreign transactions, especially in the Indian context, it’s essential to abide by the country’s regulations.


As a requisite, NRIs must provide a declaration consistent with the guidelines of the Foreign Exchange Management Act (FEMA). This is to certify that the investment funds comply with all Indian regulations.


Making the Right Fund Choice


India’s Mutual Fund market offers a vast range of funds. These cater to different financial goals, ranging from short-term gains to long-term security.


Before selecting the best mutual fund, NRIs might want to either research or consult financial experts to ensure the selected fund aligns well with their future financial plans.


The Utility of Power of Attorney (PoA)


If an NRI finds it challenging to manage the Mutual Fund investment due to distance or any other reason, they have the option to assign a Power of Attorney (PoA) to someone trusted in India.


The trusted individual, backed by the PoA, can then oversee transactions and manage the investment. It’s always safe and practical to define the boundaries of this power in the PoA document.


Understanding Tax Implications


Taxation is a significant part of investments. When NRIs invest in India, they might face tax implications here and in their residing country.


Understanding the Double Tax Avoidance Agreement (DTAA) that India shares with several countries is beneficial. Being aware can help in possibly avoiding dual taxation on the same income.


Steps for Redemption


Be it the maturity of the Mutual Fund or a voluntary exit, the redemption amount is typically credited directly to the NRI’s NRE/NRO account. Knowing about the process in advance and understanding any costs linked to redemption is beneficial.


While appearing comprehensive, the steps to invest in Mutual Funds in India for an NRI are designed for clarity and ease. With a good grasp of the process, an NRI can navigate the Mutual Fund landscape in India without any hurdles.


Things to Consider Before NRI Investment in Mutual Funds


Taxation Concerns


It’s crucial for NRIs to be well-informed about tax liabilities not just in India but also in the country where they reside. Different countries have diverse taxation norms, and being aware can prevent any unwanted surprises.


Selecting the Right Fund Type


The financial market boasts a wide variety of funds. To maximise benefits, it’s essential to research thoroughly and opt for a fund that perfectly matches your financial aspirations and future plans.


Determination of Investment Duration


NRIs should be clear about their investment horizon. Whether they’re looking at short-term gains, medium-term benefits, or long-term growth, this clarity will guide their choices.


Understanding Risk Appetite


Every investor has a unique risk threshold. Some might be adventurous and go to gamble for higher returns, while others prefer the safety of steady, assured growth. Recognising one’s risk tolerance will help select the most appropriate funds.


Impact of Currency Fluctuations


The global financial market is dynamic, and currency values can oscillate frequently. Being aware of these fluctuations is vital, as changes in exchange rates can influence the actual returns on Mutual Fund investments for NRIs.



For NRIs, the opportunity to invest in Mutual Funds in India is both lucrative and feasible. By understanding the process and staying informed about regulations, NRIs can make the most of their investments, securing their financial future.



Source- Religareonline

Best Financial Planning Tips For This Diwali


Diwali is the biggest festival celebrated in India and this festival brings us various lessons about financial planning which can be implemented in day-to-day life. While many of us plan well ahead of time for Diwali, there are various things that we need to take care to ensure best financial planning for the coming festive season


Most of us work for long hours so that we can make ends meet but we fail to take out the time needed to manage the personal finances. We not only need to earn but we also need to take the time needed to manage the hard-earned money and create that change in our mindset. Diwali is the best time to bring ahead that change and to take care of the financial well being of your family.


Let us now have a look at some of the tips that can help you with financial planning this Diwali !!


1. Start by improving your financial knowledge

Most of us suffer from low returns on our investments, debt traps, being under insured and having insufficient funds for retirement and so on. One of the major causes of such issues is the fact that we were never taught about managing personal finance. You need to have the right knowledge about managing your finance and this is the first step that you will be taking for the financial well being of your family.


2. Create a savings plan for every financial goal

Planning is important in every aspect of life. This is quite essential when it comes to money. One can set their financial goals based on the three kinds, the short, medium and the long-term goals. Such planning will certainly help in your financial well being.


3. Have proper budgeting

People can gain control over unwanted expenses by proper budgeting. By knowing how much you are earning and what is being spent, it gets easy to control finances. Budgeting will also help people to identify the area of high expense and will also help you to evaluate on how unnecessary expenses can be curtailed.


4. Reduce the burden of loans

One also needs to review the existing loans on timely basis to make sure that we only have loans that will help in increasing our net worth in the future. One example for such loans is educational loan. Bad debts are to be paid immediately. A proper evaluation of debts will help us save on the interest.


5. Plan your taxes

Most of us get into a last minute tax planning at the end of the year. You need to do your tax planning by considering your needs, goals and the risk appetite you have. People can talk to financial experts and take help for choosing the best ELSS funds for Tax Planning this Diwali.


6. Take Insurance cover

Insurance is a must now days and is the most crucial thing to remember while financial planning. Most of us do take the insurance cover but it is not adequate. While buying the life insurance policy do consider the important factors like living expenses of the present and future and how much does your family need in case a tragedy occurs. Accidental insurance and property insurance too are to be the part of everyone’s insurance portfolio.


7. Always have an emergency fund

While many of us do plan for the same, not all of us implement it. Our life is full of uncertainty and hence it is necessary to have an emergency fund. This not only helps us with the financial need during emergencies but also saves us from the stress that arises due to financial crisis.


8. Write Your Will

If you haven’t yet created the will, this is the right time to do so. Most of us do not write a will as we think that we do have such assets and also that we have placed a nomination already.  Though nomination is a great help, but it is also advised that one needs to make a will to avoid any family feuds and complications in future.


The above-mentioned strategies will certainly help anyone in preserving their wealth, not only for one Diwali, but for many more to come.


Source- Motilaloswal

What your spending reveals about you


A colleague is a coffee aficionado. He set his heart on a home espresso machine, and after tremendous narrowed down on the gold standard. The two Italian models were Lelit Bianca 2.21 and La Marzocco Linea Micra. The first would set him back by Rs 2.21 lakh, and the other was going for Rs 3.41 lakh.


My friend is passionate about baking and coffee. I suspect that he surreptitiously nurtures the dream of running his own café, or a coffee bar.


So what was holding him that he kept wavering on this decision for the past year? Well, the tug of war between his heart and mind was because he could not justify the cost to himself. Somewhere in his mind, he believed that it was not right to spend so much on a “want”.


This black-and-white classification of need and want is where he erred.


I answered him based on the tremendous research and brilliant insights of author and behavioural finance expert Meir Statman, the Glenn Klimek Professor of Finance at Santa Clara University. Statman suggests that we need to view our preferences, wants and errors though the prism of benefits. And this helps individuals choose wisely.


What do people want? They want three benefits: Utilitarian, Expressive, Emotional.


  • Utilitarian
  • Q) What does it do for me?

A watch has the utilitarian benefit of informing you what the time is. The utilitarian benefits of a car are in ferrying us from one place to another. The utilitarian benefit of a restaurant is in feeding us when we are hungry or have not cooked sufficiently to feed our guests. The utilitarian benefits of investments are to create wealth so that one day we don’t have to work.


  • Expressive
  • Q) What does it say about me?

What is the image I want to create for myself? What is this saying about me to others? These expressive benefits convey to us and to others our values, tastes, and status.


So it is not just about eating out, but the restaurants you frequent. Where do you want people to see you? Which locations will tempt you to post a picture on social media?


Along the similar lines, it is not just any car. A TATA Nexon EV Prime will tell the world that I am conscious about the environment and I take responsibility for my consumption. On the other hand, the Jaguar I-Pace conveys the same while simultaneously screaming status.


  • Emotional
  • Q) How does it make me feel?

An insurance policy will make me feel secure. A huge corpus will make me feel safe. A lottery gives me hope. Investing in a Portfolio Management Scheme (PMS) makes me proud. An electric vehicle makes me feel virtuous and responsible. A Jaguar gives me confidence like no other.


All your decisions will rest on the confluence of the above.


Humans are designed in a such a way that we aspire for much more than just meeting our basic needs for survival. People express themselves in the houses they own, the cars they drive, the clothes they wear, the restaurants they frequent, the accessories they buy, the gadgets they own, where they holiday, and so on and so forth. We can argue about how money is being spent and which is the “right way”, and which is a “good” investment or bad. But these are futile discussions because it never stops at utility.


We want to make a statement. To ourselves and to the world. What we buy and own has expressive and emotional benefits too. And they must never be ignored.


Why do we save and invest and grow our wealth? Yes, because don’t want to work in our old age or be dependent on anyone. But it is more than that. It is because we fear poverty and detest the social stigma it carries. We want to experience the freedom and liberty to walk away, that only a monetary safety net can provide. We want to express gratitude to our parents by offering them a lifestyle that they could never envisage. We want our parents to feel proud of us.


All these utilitarian, expressive and emotional benefits go way beyond the need vs. want categorization. It speaks of our values, our identify, our insecurities, our desire for social status, of playing games and winning, and more.


I love how Statman says it; We are neither computer-like rational, nor bumbling irrational. We are all normal: having wants such as not to be poor and to be rich, and making our way towards them. And yes, because we are human, we will make mistakes along the way.


Owning a house is different from renting a house, even though in both cases you’ll have shelter. Some seek the emotional and expressive benefit in ownership – pride. “Yeah, I own the place. I might have a mortgage on it, but I own the place. I’m a homeowner.” That status is dear to many. On the other hand, some may be most comfortable living in a lovely neighbourhood where they cannot afford to buy a home. But living there and paying the rent satisfies them in a way that can’t be accounted for in an excel sheet.


Statman even talks about financial investments within this paradigm.


Ask someone why they invest in hedge funds, and they will tell you about the potential for high returns and strategies not available to lesser mortals. They probably believe that even if evidence suggests otherwise.


But it is also the case that in a gathering, it is socially unacceptable to introduce yourself as a rich man if you cannot state that you are invested in a hedge fund. That, of course, will indicate that you are a reasonably rich man, because not everyone is eligible to be a qualified investor who is allowed to buy those hedge funds. That is the expressive benefit – you can hint that you are a rich man without saying that. In India, the equivalent would be a PMS where the entry point is minimum Rs 50 lakh.


A young person investing bulk of her money in fixed deposits (FD) will satisfy her want of tranquillity. The volatile stock market won’t affect her. She can break the FD when she wants. And she is smug knowing that her money is not getting “wasted” in a savings account. But eventually she will have to reconsider its utility if she wants the chance to have a reasonable amount of money that will sustain her in retirement.


Another example is a target-date fund. There is an emotional benefit because this approach boasts simplicity. The individual investing doesn’t have to worry about adjusting the asset allocation. With a target-date fund they gain utilitarian benefits and at the same time, they have a sense of calm and comfort that they are doing the right thing and on their way to achieving their goal.


Similarly, investing in index funds says that I’m going to get higher utilitarian benefits and higher returns because very few can beat the market. And I am too smart to think I can do otherwise.


This is important!


Human beings are not robots. Everything is not about a number or spreadsheets or chart. It is much more than a listing of Do’s and Don’ts, Needs and Wants.


We have desires, hopes, fears, insecurities and obligations. And how they play out is shaped by our circumstances, life experiences, gender, age, personalities, and cultures.


Don’t judge another’s decision. Walk in your lane.


So what has he decided?


It doesn’t matter. Based on the decision matrix that I presented him with, he will do what he believes is best for him.

Source- Morningstar