We tend to ask colleagues for a reference to persons who could provide us the financial product that we want to invest in. We also are chased by individuals who would specialise in selling a particular product. It could have insurance, tax planning products, mutual funds etc. In most events there is significant mis-match between what we want and what we get.
Spend at least as much time researching a stock as you would choosing a refrigerator. – Peter Lynch
On the flip side, Most of us here, where they buy products because it come from their friend, colleague, brother-in-law, sister-in-law, father’s friend etc. This happens a lot with young guys yet to start working, and their fathers have bought policies for them and then delegated the premium paying responsibility to them once they start earning, it’s a real “burden of legacy”.
Consider the case of Sanjay Tiwari who bought a ULIP from his brother-in law who had just taken new agency of Max New York. He was mis-sold to him on his common effective statement as “You have to pay premiums for just 3 years and then you can stop paying any time after that.” Fortunately, this case had a happy ending, because the investments he made from the policy proceeds did very well. He admitted to having bought ULIPs “without knowing what it is.” Many like him buy financial products without researching them thoroughly and oblige their personal relationships; they end up doing research only when they see a loss on their books.
Why does this happen?
Low Awareness: Financial awareness is very low in our country and that’s the reason we do not understand products and how they can fit our requirement, Agents put a picture of a product in such a way that it looks the best product for us.
Competitive environment and Sales Targets: There is lot of pressure on agents and manager to show performance and sell products to meet their targets because of which mis-selling happens.
Last minute “Tax Rush”: People in India do not plan their Investments in Advance and hence at last moment they buy product just to save tax and which does not fit their requirement, and sellers take advantage of this.
Not ready to pay for Advice: We rely on “free” advice most of the time. This is in our culture & our genes, it seems. If we can get idiotic products like, ULIPs, NFOs, endowments polices etc. from one of our relatives or someone known, then why pay someone for advice?
Short vision: People tend to invest in equities and mutual funds for short span of time. They look at unrealistic returns at short term. No one is ready to settle below 20-25%? 12% is abusive to them, & makes them feel like they are cheated.
What can we do and should do?
If you see your past behaviour – You might have spent very less time in buying a product and maximum time worrying and cribbing about the product later. However all you need to do is spend some more time at the time of buying and nothing later. All their life Indian investors take decisions on the basis of trust and relationships.
We now, need to take responsibility of what we are doing and make our own decisions. So the only thing we can do is to educate our self to the level where no one can take advantage of our ignorance. Once you come to a level, where you understand importance of things in investing and managing your money, then no one can mis-sell you the products.
Note that the major tactics to lure investors are used by agents following fancy words:
§ High Dividends declared by Mutual Funds
§ Premium can be stopped after the first 3 years
§ This fund has returned 40% annual return in last 4 years
§ ULIPs offer guaranteed returns
§ I will give you 10% of Cash back on premiums paid
§ Money doubling in three years
§ You can get Free Insurance and Tax Benefit
§ Low NAV of a NFO from mutual funds
Don’t Take any product just because it look good or is recommended by someone known. Most times, plans and products come from one of your relatives. STOP IT PLEASE! A simple NO might hurt your relations with said person, but it will save you, your hard-earned money, rather than waste it on idiotic products, which you’ll regret for life. It’s just common sense that there are better advisors and consultants than your relatives or closes ones, unless they themselves are known and respected in the field (of finance).
Do your research and do some study, it does not take more than 1 hr to search the net and read about it, or ask some knowledgeable person whom you trust about the product. 1 or 2 hrs to study can save you pain of years, so don’t be lazy, when it comes to money no one is yours, it’s only you who can save you from mis-selling.
So finally avoid the trap, ask questions, and doubt everything!!
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Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning
articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at email@example.com