“Money is a matter of functions four, a medium, a measure, a standard, a store” — Undergraduate Economics Text Book That was what we learnt while we struggled with Economics at the undergraduate level. We understood that money is something that is a medium of exchange – currency notes are exchanged for a pair of jeans or a pizza. It is a measure of value – Lee jeans needed more of the notes and local brands fewer. It is a commonly accepted standard of purchasing power – while the rupee exchanged easily in India, we needed a different set of notes and coins when abroad. It is also a store of value – the roses that 50 bucks bought wilted away, but the note (if not spent on roses) did not. That was then. Now, to our generation, money means the paper notes and coins in the wallet. The bank statement that comes once a quarter. The credit card that allows buying even without having the necessary money in the bank. The Internet payment gateway that allows one to buy and sell without using cash, card or cheque. The mutual fund account statement that talks of the value of investments. The stock prices on the CNBC ticker that talk of the changing value of the wealth every minute. The price of gold every day that tells of the value of the ancestral jewellery. Or the price per square yard of property that allow some people to smile in satisfaction as they see it grow over the years. But money is more than all this. It is also the cash card that one buys for the mobile phone. It is the frequent flier miles accumulated as one zips around the country and abroad. Is it the food coupon the employer company gives as a perk, instead of money, that can be used in select restaurants. Look abroad and what is called ‘money’ looks even more bizarre – Disney dollars that are used on par with US Dollars at most Walt Disney World location across the globe. Canadian Tire money is a scrip issued by Canadian Tire Stores and Mastercard and is popular in bars, where people can sometimes spend it at par. If these are corporate innovations around money, there are examples of community currency systems. Raam Mudra, issued by the Vedic City, Iowa by the followers of the Transcendental Meditation movement, is used in a many locations around the world. Fureai Kippu are Japanese private currency systems to pay for any care for the elderly that isn’t covered by the national health insurance. Ithaca HOURS local currency is issued by a local community organization in Ithaca, New York. Ithaca HOURS are printed and exist physically. In Ithaca people can go to the farmer’s market and buy vegetables and eggs with them, or even pay part of their rent Money has changed form. From bits of gold to bits and bytes. What will it look like in the future. Nobody is sure of the exact form, but there is agreement that money is moving from being under tight government control to electronic entries that are not really under anybody one institution or person’s control. While we wait for the broad changes to pan out, Your Money Matters takes a look at what the Indian financial sector will pull out of the hat in 2005. Financial sector professionals talk about what they expect in 2005 in products. “No load products are needed that work for the individual” Gaurav Mashruwala (CFP), Financial Planner • Pension products on the line of the 401(k) products in the US. • Reforms in the real estate market. The impact cost (stamp duty) should go down and the transferability should get easier. • Income tax slabs should go up or the Rs 1.5 lakh tax benefit should get extended to the principal amount as well. • Health insurance plans that cover home treatment as well. • Long term care products are needed. • Disability insurance. We have only accident insurance that protects against disability due to an accident. But we need insurance against disability due to illness or disease like paralysis. There are many couples who earn more than Rs 10 lakh a year, they need higher level disability insurance • Reverse mortgage products are aspirational, not going to happen in 2005 • Commodity mutual funds will come – gold and real estate. • Fixed maturity plans for retail level – capital guarantee funds. • Long term maturity debt products at the retail level. • No load funds are needed – no brokerage needs to be paid if the investor goes straight to the fund. • No load insurance policies should come in, either the cover is larger or the premium is smaller for the same sum assured. “Capital guarantee funds should come in” C Jayaram Executive Director, Kotak Mahindra Bank • Capital guarantee funds where the principal is ensured. • Arbitrate products for the high net worth individuals. • New asset classes in mutual funds like commodity. The problem in this area is the lack of expertise with brokerages. That will take time to build. • Real asset mutual funds are some distance away, but REIT’s that is venture fund investing for high net worth individuals in real estate will begin. • Art for high end investors. • ETFs should become more popular. • Policy guidelines on pensions will come in, but the first 401(k) kind of product will come only in 2006. “Insurance needs better execution on existing products rather than new products in 2005” Ian WattsCEO , Tata AIG • More of group specific products, like those for women. Health, pension and insurance products around groups should come in. • Disability insurance as a standalone product. • More health and accident products. • Endowment products for different groups.
