Spend at least as much time researching a stock as you would choosing a refrigerator. - Peter Lynch
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.
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.
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
Conclusion
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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