Behavioural biases that damage your investments!

The new compensation rules as per the Wage Code Bill will change your salary structure. It will result in less take-home salary and higher retirement benefits. Will this blanket restructuring benefit all? Well, the answer is not so simple as many factors come into play. First, it might depend on the age bracket you fall into. This is because someone who is young with high expenses might want cash today over the choice of saving for retirement. However, for someone who is near retirement and almost through with responsibilities and liabilities, a higher contribution to PF would mean cushioned retirement.

While the age bracket is one factor, one cannot deny the fact that EPF gives the highest return with a sovereign guarantee. So the increase in the EPF amount actually gives one a chance to park savings at the highest guaranteed return. For people who love to invest in fixed-income assets, it would be a golden chance to earn more returns. However, active investors might not prefer this forced saving, especially, those who opt for investing in equities. This is because all said and done equities have given better returns than any other asset class in the long run. Having said that people who are savings in equities might have to revisit their investments given the lesser take-home salary they will have once the Bill gets notified.

Last but not the least, we as Indians have the habit of withdrawing money every time we change our jobs. This is one of the many reasons why people generally fall short of having a comfortable retirement. We need to change the mindset otherwise even this higher basic salary will not serve the purpose of assuring comfortable retirement. With the notification of the Wage Code Bill, 2019 you might have to tweak your investment habits.

The new code should have been optional for employees, not mandatory.