Today’s topic is an easy to understand and informative read for the weekend. It’s a speech delivered by Dr. D. Subbarao, Governor, Reserve Bank of India at the RBI-BIS Seminar on “Mitigating Spillovers and Contagion – Lessons from the Global Financial Crisis” (click to download) at Hyderabad earlier this month.

Of significance is this quote (a close friend and I had discussed precisely the same point in January of this year):

Forgotten in the euphoria of financial alchemy is the basic tenet that the financial sector has no standing of its own; it derives its strength and resilience from the real economy. It is the real sector that should drive the financial sector, not the other way round.

Financial alchemy. I love the term — a new one for my arsenal! A few examples for financial alchemy that we see on a daily basis include:

• Unit Linked Insurance Plans (ULIPs)
• Unit Linked Pension Plans (ULPPs)
• Mutual Funds with esoteric investment methodologies (e.g. special situations funds, arbitrage funds, opportunities funds, multi-manager funds, fund-of-funds funds etc.)
• Initial Public Offerings (IPOs)

What do you think?

Awareness Fridays is an initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.