Savers, non-savers and pension funds

Here's the hardest truth about money. There are people who think about savings and investments in the bathroom and there are those who don’t and the latter cannot be converted into the other.

And I literally mean the bathroom part. In the bathroom, people think about whatever is on the top of your mind, the one that they are most interested in. If savings and investments never make it to your bathroom, then your brain is probably wired a little differently from people who does.

It follows then that the standard idea of investor education may well be completely inadequate. Most of the kind of people who really need to be educated about where to save are not interested and will not follow the principles of that education anyway. You can try and make people learn about savings and investments and asset allocation and choosing the right investment class. However, only those people who already sort-of understand these things will pay attention. This is deeply rooted in some people’s behaviour. For the rest, the general principle of bad financial products pushing out the good ones will win out most of the time. In general, most people will buy savings products if coerced by tax incentives.

Curiously, one class of such products that are possible under the existing regime but are actually not available are pension funds. A pension fund is a mutual fund that has a lock-in till the investor reaches retirement. There are actually two pension funds that are operating in India since the decade before last, but none have been launched since then.

With a range of funds that are suited to different needs and already have a track-record, pension funds from mutual funds should have been an idea that is too good to ignore. Over the last year, there has been some amount of attention paid to the idea of reviving this concept.

Encouragingly, SEBI chief UK Sinha has himself talked about the concept a number of times. Hopefully, given that the legal framework (and some products) already exist, we should see some serious movement on this front before long.