1st April is celebrated as FOOLS Day & we all enjoy playing tricks and pranks on our near ones. But, most of these tricks masterminded on this day are usually harmless. But few of the agents keep fooling investors for of their whole life & this could prove to be very harmful. We wrote regularly about how insurance agents are mis-selling & we got many queries asking – Does Mis-selling happens in Mutual Funds? Our answer is Yes. Let’s Check.
Trick is…. & Truth is….
New fund offer (NFO): It is best for distributors but seldom for investors. Agent normally gets double commission than existing funds. Earlier it was as high as 5-6% and that use to come out of your pocket.
Investing after dividend Announcement: It is from your own invested money. And the value of investment goes down to the extent of dividend paid.
Churning from one fund to another: Agent gets commission in every transaction and you land up paying the loads & taxes in every transaction. Who cares…
Market Timing: If agent knows when the market can go up or down, he is even better than fund manager. Why the hell is coming to you? He can earn better managing his own money.
STP through MIP: This is Double Maja for agent. For same amount he gets double brokerage. Aapke kharchon se kise matlab.
Tax Fund When no tax saving needed: Agent gets more revenue so he sacrifices your liquidity, assest allocation & returns. Chalta Hai….
With change in RM’s job, your portfolio changes: Every Relationship Manager wants to show his new organisation that he has got fresh business and takes you for an expensive ride.
Many applications in just one fund: Logic pata nahi … But he will get extra per application commission. And you get some extra confusion managing multiple statements.
Showing Short Term performance: This is basically to misguide you to buy a product so that he meets his traget hich will give some extra incentive. You must watch for Long Term Performance and Consistency of the fund.
Low NAV: High or low has nothing to do with the future performance of the fund. Also more number of units is not equal to more returns.
We at TFL, believes Mutual Funds are one of the best investments that an investor can make . The schemes in Mutual Funds are designed to meet different needs of investor. Identify your need and then invest. Buying on the basis of above recommendations/sales pitch cost a lot to you.
We at TFL thought of giving you a simple way to understand whether the Agent who is knowing your door to sell an Insurance policy is a friend to you pretends to be a friend. Following are few of the common mis-selling tactics used by the Agents to lure you to buy a policy. (We wrote this article on 1st Jan 2010 for our First Quarterly Journal. Few of the things can change from 1st Sep 2010 but always remember for few of the agents mis-selling is the only way of selling. They will find new ways of doing it.)
What agent claims… & what is the truth…
Pay for just three years and then you will be covered through out the life
Utter nonsense, insurance will remain until there is some units available to deduct the mortality charges.
Pay for just three years and the product will double your money
For God Sake, sell such policy to Reliance Brothers. Even they could not double their money like this.
Last Chance – If you miss the last date, you will not be entitled to have this “Kohinoor Heera”
Last dates are ment so that the agent can push hard at you so that you can take wrong decisions.
There could be name for charges like Policy Administration Charges, Maintenance Charges, Fund Mgt. Charges, Other Charges etc.
Past Performance was great
There is a difference between the policy performance and that of investment performance. In maximum cases, the policy holder’s return are far less than that of Investment return.
Emotional selling – like CHILD EDUCATION INSURANCE, RETIREMENT PLANNING etc.
Don’t be emotional when you buy insurance, Think with BRAINS and not with HEART.
Minimum Return “Itna to Milega hi”
In reality, this is no where written on the policy document. this is just a sales pitch which is verbal.
Insurance is Free
There is no free lunch, Mortality Charges are always part of every insurance.
The returns that they guarantee are even less than that of given on your saving bank account… is this called Guaranteed?
Would you like to add few more tricks from your experience.