An unaware person is more susceptible to be lured by financial advisors/ agents false statements. The extremely sugar coated and promising statements of financial advisors are sufficient enough to induce a person to invest in inappropriate products. These products can be a life insurance policy, mutual funds, ULIPS or may be something else. Through this article, we will try to learn the questions that you should ask your financial advisor while investing in any financial product through him and their possible replies from, which may or may not be the correct replies. I hope after reading this article your agent will not be able to fool you with his tactics. So, let’s give a look at your agent’s possible and most common misstatements:
1) High dividend payout ratio of a mutual fund
It is obvious that if a company will offer big dividend then people will get attracted towards it and specially those who are unaware of the working of mutual funds with dividend. Your agent will tell you that so and so mutual fund offers a very high rate of dividend. Don’t get trapped. The fact is high dividend will result in less NAV.
2) Exceptionally high performance of a mutual fund or ULIP
When your financial advisor try to convince you by saying that the mutual fund in question has shown exceptionally high performance in say last 2 or 3 years, then check out the returns of Nifty for the same period. If Nifty shows a return of 38% and mutual fund shows the return of 39 or 40%, then what is so exceptional about this mutual fund? After all, you will have to bear the costs of mutual fund. If this is the case then direct investment in stocks should be considered as a better option.
3) An option to stop paying premium after 3 years
Your agent may tell you that after 3 years you can stop paying premium, if you wish to. Don’t rely to his statement. ULIPs have a lock in period of 3 years whereas you can stop paying premium after 1 year.
4) 10% cash back on premiums paid
Once I saw my colleague making a choice between two agents on the basis of percentage of cash back. Well, it is your money only and has nothing to do with the returns of the policy. Actually, the commissions on ULIPs and endowment plans for the first year are high. Agents pay a part of this commission back to you as discount. This is basically a tactic to sell their policy to you.
5) Guaranteed returns by ULIPS and low risk
Oh really! Then why not to put your funds in fixed deposits, PPF, NSC or something like this. As of now, there is no ULIP that comes with guaranteed returns. Remember a golden rule, any financial product that offers return more than your bank’s fixed deposit is bound to consist of some degree of risk. Even your ULIPs are not an exception.
6) The policy offers a guaranteed return of 200%
What is so great in it? When your agent talks about 200% or 250% return, he doesn’t mean that you will get this return in next 5 years. The tenure is as long as 20 or 25 years. A simple interest of 250% for 20 years is equivalent to 6.46% CAGR return. Don’t get attracted to heavy and pleasing words like ‘secure’, ‘guaranteed’, etc. Question your agent about the financial details of the plan like its internal rate of return, 250% is simple interest or something else and so on. I hope within 2 such questions, you will come to know the truth.
7) Your money will double in 3 years or 5 years
Is it guaranteed and written in the offer document? Read it carefully, it will not be written. Your agent tells this to convince you to purchase the policy. And he might even prove it you in an illustration with 15-20% return. Tell them, as per IRDA rules, they need to show you the values by taking 6% or 10% return.
8) Free insurance, free tax
Always remember, there is nothing called free in this world. There are mortality charges attached with the insurance. And if your agent vouches on the ground of tax benefit under section 80 C, then there are lot many products in the market that are offering tax benefits. And most of the people invest in these products due to tax benefit only.
9) This product is going good in the market
People have their own set of requirements. What has clicked others may not fit well in your case. Check your own requirements and returns of the product.
Stay Alarmed, Stay Protected Against Misstatements!