The holy trinity of personal finance-and why people ignore them

I'm sure that CFP(Certified Financial Planners) would be feeling like Cassandra's at times. They accurately predict doom, but they are cursed that noone acts on their advice!

Below I list 3 simple financial products which by design are superior and riskless, yet undersold in India

1. SIP of Index Fund:- An index fund passively replicates the returns of the index. If markets are fairly efficient, then it is difficult for active fund managers to obtain excess returns after considering extra fees and costs. This should be largely true for Indian largecaps(but not for midcaps/small caps). And SIP makes us disciplined investors.
2. Term Life Policy + Health Insurance:-This would substantially replace the income and ensure a similar quality of life, in case any misfortune happens.
3. Pension fund(preferably NPS):-The magic of compounding and forced savings(saves us from ourselves

While the misselling of money back endowment insurance policies and corporate medical insurance benefits may have stemmed (2) and (3), it is a bit puzzling why index funds have not really caught on. One may argue that the commission was too low, but then after the entry load was abolished nearly 2 years back, that reason should have gone. So why does that low penetration persist?

Like all good things, index funds come with some drawbacks like
(1) Distorted cost of capital for index stocks
(2) Inferior corporate governance
(3) Diminished market efficiency
(4) Enhanced concentration in the fund industry

And an India specific reason is that markets are decisively NOT efficient(this is the major premise of Index funds). As an investor in Indian equities would know, In India, market inefficiencies may still arise on account of:
(1) Poor information access: inferior disclosure laws
(2) Inferior human capital
(3) Higher transaction costs

Takeaway:-While I would still suggest the holy trinity of personal finance for anyone(and you can do all this online nowadays without human interaction), I would understand if people decide to avoid index funds!