Many advertisements on financial products are being seen on the television or read on the newspaper and magazines where numbers are tweaked and framed in such a way, that the financial product looks very attractive as we get excited and not-to-miss an opportunity! We are flawed to see the advertisements and nothing seems wrong to us because a bit of creativity and lot of embellishment of the numbers are flummoxed by the high yield indicated in their posters or banners. These financial ads are enticing you to invest in them on the pretext of tax saving, retirement planning or children’s future etc. Whilst encountered with these products, you need to be careful not only about the taxation aspect but also indicated returns, leaving you impoverished in your old age if you go by their attractive but misleading ads today.

At this juncture, you must be as an investor and we as financial planners should get alert about such misleading advertisements because such big institutions and banks are indulging in a highly embellished communication of doubtful veracity. Mislead

Misleading or partially true advertisements

We came across a few advertisements in several media including the Company’s website, their innovative approach are misleading to push a faulty product down the throat of gullible people.

One of the leading insurance companies has launched TV and print advertisement proclaiming that its pension plans offer ‘retirement plans with super benefit’ with a tagline “Taaki kal bilkul aaj jaisa ho”. The translation: “so that tomorrow may be just like today” – in terms of financial well-being. The print ad has catchy pictures with phrases like “Will your 63rd birthday be as grand as your age 36th ?” and “Will your exotic vacation plans retire with you?”

What is the problem with this advertisement?

The ad says that putting Rs 5,000 per month for 20 years will earn lifelong retirement of Rs 11,659 per month. The fine print of the ad mentions that they have assumed 8% p.a. returns for 20 years of accumulation phase. Why is this misleading? The problem, as Moneylife pointed out, is the screwed up math of advertisement as the value of Rs 11,659 per month after 20 years at 9% inflation is just Rs 2,081- which cannot allow the couple to enjoy their lifestyle of today. What is the worse, as Moneylife pointed out a saver would get a significantly higher return by investing in Public Provident Fund which is not taxable, unlike a pension plan. If one puts only Rs 5,000 pm in PPF for 20 years and gets 8% pa (to make a like-to-like comparison with company’s assumed rate of return), he will get life-long pension of Rs 16,761 pm While PPF does not offer lifelong pension, we assumed PPF corpus after 20 years to be invested in an immediate annuity product with 7% pa returns, which is in sync with company’s assumption in the ad. It’s a whopping 44% higher income than that what company’s slick advertisement offers! It has been possible because in PPF what you are offered as interest rate is what you get; the same is not true for life insurance and pension products due to the inherently hefty charges. If PPF continues to give 8.8% pa (current rate) then you would get a whopping 58% higher pension amount than what the insurance company ad offers!

Jago Investor, a personal finance website has highlighted how State Bank of India has misled the advertisement of its 5-year tax-saving deposit (deduction of up to Rs 1 lakh from taxable income under section 80C) would get effective yield of up to 17.39%. Because to arrive at Effective Annual Yield, an investor must fall in the category of 30% bracket and does not exhaust the limit of Rs 1 lakh from the taxable income under section 80C. When such being the case, how the advertisement can conveniently ignore the taxation on the interest income? Interest on bank deposits is taxable as “Income from other sources” as the investor falls in the same category of 30% marginal tax rate and it omits to mention the post-tax return which is substantially lower. It is a convenient forgetfulness on the part of advertiser.

What about Financial Regulations?

Unfortunately, the banking regulator has no rule on misleading advertisements, SBI and other banks too can get away with such mischief. But who cares as long as it is a big govt. owned entity? The only regulator to fix the problem of mis-selling of mutual funds and insurance are the Securities & Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA). Their definition says, mis-selling is not restricted to false statements, but can also happen by ‘concealing or omitting material facts’ or ‘concealing associated risks’ and not taking care to ensure ‘suitability of the scheme to the buyer’.

Investors have the option of complaining to the Advertising Standard Council of India (ASCI), but that won’t work either. ASCI’s advertising code, which is the strict yardstick by which the complaints committee judges advertisements, does not provide for the peculiar nature of financial advertisements, which cause great financial damage by simply omitting key details. By ASCI’s current code, as long as the advertisement has disclaimers and seemingly correct calculations, there is nothing it can do.

What then is answer to the damage caused by misleading advertisement?

Clearly, we the investors and planners will need to get together to force all regulators to form a body like ASCI to formulate a common code that is applicable across the financial sector. However, the government has already set up a National Consumer Protection Agency (NCPA) to monitor and penalise companies that make misleading claims in their advertisements. The NCPA, under the consumer affairs ministry, would be empowered to take severe action, including recall of the product and slapping cases against the firms. The move to set up the NCPA was triggered by the increasing number of consumer complaints against misleading and exaggerated claims in advertisements.

Image Courtesy: FreeDigitalPhotos.net

PS: This article got published in Hindi Dainik Bhaskar on 19-07-2016

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
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 info@prudentfp.in
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