Trap: I invest in highest NAV (Net Asset Value) plans which ensure that I get the highest returns for my money.
Fact: Highest NAV is fine, but the question is what is the fund allocation of the highest NAV plan ? If the money is invested in debt securities or the fund manager has the option to do that at later stages, it would result in very average returns. Majority schemes fall in this category. Why does the company sell other plans if it has the highest NAV plan? Why would anyone buy other policies/funds at all if we have the highest NAV fund option ?
Trap: I invest in guaranteed return funds which ensure that I get assured & reasonable returns.
Fact: Most guaranteed funds have poor returns, similar to savings bank account interest. The projected returns displayed to you have a small guaranteed portion but a large part is not guaranteed. You need to be sharp enough to differentiate the two.Why does the company sell other plans if it can offer good returns on a guarantee fund ? What good is the guarantee if the return is just 5% to 6% ?
Trap: Bank employees are best advisers as they are monitored by the bank managers. Friendly neighborhood advisers would advise the best.
Fact: Banks act as agents for mutual funds & insurance companies. Bank employees earn equivalent high incentives on selective products. Banks have targets to sell the high commission products as each branch has a revenue target to chase. Of all things, the bank managers would think of their interest first. Who do you think would win if you ask for the seller's “free” advice & then proceed buy funds/policy from him?
Trap: I always buy LIC plans as they offer best returns with least risk. Private companies & funds are risky.
Fact: All life insurance companies are safe as ensured by regular monitoring by IRDA (Insurance Regulatory Development Authority). IRDA appoints chief actuary in all insurance companies & monitors their financial health regularly. Additionally, planning investment in insurance products is not the best of the idea as most insurance products have high charges. Obviously you won't get to buy the low charge policies as brokers don't sell them much due to low commissions.
Trap: LIC advisers largely think in customer’s long term interest. LIC ensures that its policies are always in customer’s interest. LIC advisers largely think about customer’s long term benefit.
Fact: LIC policies have offered poor returns in the past. Most advisers would push endowment plans that pay high commissions. LIC has largely favored long term endowment plans that are very opaque on charges & are extremely profitable for agents. Even in ULIPs (Unit Linked Insurance Plans), customers are made to understand that returns are “guaranteed” as it comes from LIC, which is obviously false.
Trap: Most financial products & funds are designed in customer’s interest & the accumulated funds would not differ much.
Fact: The returns from a poorly advised (high commission paying) product could be 25% less as compared to a well advised plan. Worst still, it’s very difficult to prove this & argue with the advisors/company post a loss as you would not have the comparable benchmarks with you. Returns that the companies show under NAV growth are exclusive of your policy charges, which implies that there is substantial deduction on your policy investment before the money reaches your hands. In case of mutual funds, the high expense ratio can kill your returns substantially, specially in a fairly valued market that we have these days.
Trap: I always invest in real estate. Land prices & property never go down.
Fact: Property investment in India completely lack transparency as there is no market to assess the property values. The brokers story of " Prices are stable but currently there are no buyers in the market" is too well heard by all. Well if there are no buyers at a price, then the price is too high. Who doesn't know that. It would have been difficult to convince people on real estate a couple of years back. But talking in 2017, do we need to say anything ?