I have come across many people who have been victims of misselling. I also fall into this category many years back when I was a novice to investing. I have come up with some simple rules which if followed will greatly reduce the chances of you becoming a victim to many of the financial predators out their who will always try to con you out of your money.
Understand the PRODUCT
Prior to investing anywhere, I always advise everyone to first understand the PRODUCT. Be it mutual funds, ULIPS, traditional endowment plans, shares, futures and options, post office Small Saving Schemes, one needs to understand how these products work. Spend as much time as possible in understanding the product. Do your home work, research on the internet and use any other source that is available to you.
Understand RETURNS and RISK
Once you have narrowed down on the product, evaluate the returns that can be expected from the product. Next understand the RISK associated with the product. Evaluate if your stomach can digest the risk associated with the investment product.
Understand the CHARGES and BENEFITS
Once you have decided on the product to invest, the next step is to evaluate the benefits and charges of the product. One needs to have the patience to read the product brochure to understand the benefits and charges. Evaluate if you are willing to pay the charges for the benefits provided. Not evaluating the charges is one major reason for discontent.
Not understanding either the product or the risk or the returns or the charges or a combination of all of the above is one major reason why one ends up buying the wrong product. Once they realize that they had bought the wrong product, they start to regret. Their emotions are heated, they get angry and upset. They start blaming their so called investment advisor (who is purely a salesman who is more interested in his commission than your interests). To avoid falling into this trap, every investor needs to do their home work.
42 comments:
hi
gr8 work. admire the amount of work u put in.
i would like to know abt capital unitgain scheme by bajaj allianz. the agent told me 95%of premium is allocated in shares.and in 3yrs with apremium of 12000 per annum i can reap 60000 by surrendring at 4th year.
is it t best scheme by bajaj allianz like my agent. i would like to know ur opinion on this...keep up the good work
Your agent is making FALSE PROMISES which is illegal and equivalent to cheating according to IRDA regulations. Ask him to show you illustrations with 6% and 10% returns for the premium you are paying as required by IRDA. Now check what the actual returns are as per the illustration.
Regarding Capital Unitgain scheme, it has the maximum HIDDEN CHARGES. They have something called "Initial Management Charge" which is 5% per annum. This is extremely high and I have n't come across any other ULIP which has this charge.
Finally, if your investment timeframe is 3 to 4 years, my advise to you is stay away from ULIPS. Instead invest in mutual funds. ULIPs are only for longterm investors preferrably 10+ years.
-Raj
i went to sbi bank to join magnum tax gain but t clerk there was adamant in selling sbi unit plus 2 pension. he says its better than magnum taxgain bcoz t face value is 10/- ,administered by t same fund managers,single premium plus t option of NO LIFECOVER.for magnum,face value is 48/- so number of units is less. he sounds convincing but i havnt joined as yet.which do u think is better? any chance of market goin down coz i want to invest then......thanks for t above response....
Whom ever you approached is trying to trick you by comparing NAV's. In reality it does not matter if the NAV is Rs.10 or Rs.100. All these are just tricks played to sell a product.
I would advise you not to go back to that person whom you approached. He is not working in your interest but is only trying to sell the product he wants to.
Magnum Taxgain is a very good ELSS to invest in. Approach some other mutual fund agent.
Thank you for the great advise about ULIP.Is it advisable to take bajajallianz capital unit gain scheme for long term investments of 20 yrs or more.if my annual prermium is 50000 rupees, how much will I gain if I pay for three years.Myagent says I will get an insurance cover of 5lakh along with this.Please advise
Bajaj Capital Unitgain scheme has extremely high HIDDEN CHARGES. I would strongly advise you not to invest in that plan.
When investing in ULIPS, have a long time frame in mind. Do not buy the three year plans suggested by most insurance agents. They just donot work.
I am having an account with hsbc and they have an sip through which they have sugested me to invest in TATAAIG INVESTASSURE GOLD can you please tell me how good or bad is it for long term investment like pension plan.I am 29 yrs old now
too good blog.thanks for all the info. 3-5-10-20 year investment in ULIP comparison article was very great.
i have the following query
My LIC agent forces me to invest 25000 for 3 year term in MARKET plus ULIP LIC plan. Please let me know what would be the probable returns i would be making if I invest as per his advice.
Also he never pays me any pint of amount as incentive during the initial investment. Does LIC give him incentive on the investments we make. I see the other agents sharing the incentive with the investors. But is it true that incentives are paid for all ULIP investments too?
Insurance Agents get commission based on the premium you pay. The amount varies from policy to policy. Some agents rebate some of the commission they earn. They do this as an incentive to attract their clients. But this is illegal according to IRDA rules. I would n't advise anyone to give rebates or ask for rebates as it is illegal.
Regarding the kind of returns you can expect, you should ask your LIC agent for a policy illustration. This will give you an approximate idea of what your value of investment will be.
hello sir
I want to invest around 20,000 per year for at least 3 years.
With this i want to get insurance of my life as well as high returns (around 15% will be fine for me)
Should i invest in Bajaj Allianz UG Plus GOLD as advised by an agent.
or is there any better option?
Hi,
I need some advice regarding a unit link insurance policy I took in th eyear 2004. In a certain year mislead by the term "top Up" I made a top up that breaches the 20% limit of my sum assured. The company also accepted this without any warnings. Now I understand that any amout I withdraw will be taxable at a hefty rate of 30% and I will not get any benefits under section 10(10d). Is there some way I can avoid paying this big amout. Can I hold the insurance company responsible for investing my money without warning me?
Thanks
Hi Everyone,
I need your opinion on best alternate for building a corpus for child education. I am evaluating traditional as well as Equity oriented investments plans.
I am 38 yrs old and for my 7-year child i want to start investment. I have thought of below split up for nest 12-15 years
PPF: Rs. 8000 per year (Around 15% of total)
Fixed Monthly Deposits: Rs. 18000 per year (around 35% of total)
Equity oriented: 25000-30000 per year (remaining around 50% of total)
For equity related stuff I am thinking of:
a) Either Mutual funds or
b) ULIP
I have read lot about ULIP being expensive and so on. Can one please suggest whether ULIP is better for 12-15 yrs than MFs or any other opinions are also more than welcome.
Thank you,
Pawan
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Dear Shyam,
Sorry for my late reply. I would advise taking a term insurance and invest the balance in mutual funds through SIP.
Thanks,
Raj
Dear Pawan,
As this is for your kids education, I would advise investing through SIP in mutual funds which offer free insurance cover. Such plans are offered by Reliance, Birla Sunlife and Kotak.
Thanks,
Raj
Dear Raj,
I have been going through your posts since last few days and they are really gr8. Hats off to you for your articles.
I have a query here, in 2007 I bought a ULIP plan (LIFE SAVER PLUS) from AVIVA and the yearly premium i opted for is 60K for 25 years(for a cover of 15Lacs). My biggest mistake was I didn't do good homework before investing the money but started doing that latter on and even came to know that even IRDA had asked AVIVA to stop this plan. As per rules of AVIVA I can reduce the premium only at the time of completion of year of the policy i.e. 1 month prior to every Odd installments (3rd, 5th, 7th...) payment schedule. I spoke to the agents and they say if i reduce the premium i will be in Loss.
Please advise what step I should take and what would be the repurcursion if I reduce the premium to 15K annually. Also what if I discontinue the policy after 3years payment lock in period.
Waiting for an early response from you.
Regards
Rajiv
Dear Rajiv,
I am sorry to tell you that the ULIP you have invested in is a real bad one.
First year, Of the 60000 premium paid only 55% is invested, which equates to Rs.33,000. Rs.27,000 is lost as the premium allocation charge.
Second year, of the 60000 premium paid only 70% is invested, which equates to Rs.42,000. Rs.18,000 is lost as the premium allocation charge.
This policy also has bad surrender charges. Even if you pay three years premiums, you have to pay a surrender charge of 50%. (Many ULIPS do not charge surrender charges if three regular premiums are paid). The surrender charges are higher if the premium paid is less than 3 premiums.
Per the policy document, it does not allow changing premiums until 3 regular premiums are paid. So you might want to get this clarified with your agent.
Before I suggest what needs to be done further, whether we can continue to invest or redeem, I will need the following information from you.
1) How many premiums have you paid so far. Both 2007 and 2008 premiums or just the 2007 premium. Please also do let me know the dates when this premium was paid.
2) What is the current value of your investments(Value of all the units alloted to you). Most ULIPS give you an online userid using which you can check the current value of your investments. If you don't have one, you might want to take the help of your insurance agent to find out the value of your current investments.
Thanks,
Raj
Dear Raj,
Thank you very much for your prompt response to my query.
Firstly I would like to correct an error I made in my query. Premium payable by me is 30K half yearly (by mistake I mentioned 60K yearly)
The responses to your queries are:
1) I have made premium payments only for FY 2007-08 and the dates these premiums were paid are: Sept 26, 2007 and Mar 26, 2008 of Rs.30k each. Policy commencement date is 26.09.2008
2) The total fund value as on Aug 15, 2008 is Rs. 47,231/= (Online status check)
3) The policy document says: “From the first Policy Anniversary onwards you may propose and increase or decrease to the Regular Premium payable under the policy provided". However, the document also says the annual should not go below Rs.15K after the reduction.
Please advise.
Waiting for your early response.
Thanks and Regards,
Rajiv
Dear Rajiv,
A big portion of the charges are deducted in the first year, which you have already paid. So the damage has already been done. Reducing premium is going to reduce your Sum Assured of 15 Lakhs. If you are not adequately insured, then I would advise you to continue paying the premiums just for life cover.
Before we decide if you need to reduce your premium, the following are the factors that will need be considered.
1) Identify how much insurance you will need
2) Check how much insurance you currently have.
To evaluate your insurance cover required, a simple formula is to have insurance cover 10 times your gross salary. A more accurate way to check your insurance needs is to use a Human Life Value Calculator
If the insurance cover you have is less than what is needed, then I would advise continuing the premiums at the same level.
Thanks,
Raj
Here is a link for Human Life Value Calculator
Dear Raj,
I have been going through your posts since last few days and they are really gr8.
My age is 27 & I have already invested one lakh in mutual fund & now I want to invest around 50,000 per year in ULIP Plan.
With this I want to get insurance of my life
Should I invest in Bajaj Allianz Fortune plus as advised by an agent.
And Following are my requirement:-
1)Life covers for atleat 10 to 15 lakh.
2)For haw many years in should invest
3)My time frame is 3-5 yrs for investment & won’t be withdrawing for atleat 10-15 yrs
Or is there any better option?
Dear Mak,
I have received your email and have replied to it.
Thanks,
Raj
Very nice blog. I would like to know your opinion on the following. I would like invest for my kids education (5 and 3 year old) and a SBI life agent is pushing me for SBI Unit plus child plan. I am 35 years old.
-Nayak
Dear Nayak,
Oflate, I have not had the time to review the specific plan suggested by you. But the following would be my advise.
1) Get illustrations for child plans for all the companies like Kotak, HDFC, ICICI, SBI.
2) Once you get the illustrations for the same premium and sum assured, now compare which illustration gives you the maximum return. The one that gives maximum return is the one that has the least charges.
3) Please also make sure all these plans come with the premium wavier offer and also the sum assured.
PS: Insurance should not be taken as an OBLIGATION. You objective should be more about securing your child's future rather than taking some policy because of pressure.
Thanks,
Raj
Hi,
I have read few of the articles in your blog and i found them really helpful.
I have a query. I am thinking to invest 70k so that i get tax exemption. I am little worried about investing in mutual funds reason being the present day market condition. I have already invested 25k in ICICI Prudential life insurance (life time gold-5lac) and the fund value has decreased considerably from 20k to 10.66k, so i am little skeptical about investing in elss. I am presently thing about investing 51k in lic's aastha and 20k in ppf.
do you think there is any other good plan i can go for, be it ulip or mf( btw i am 25 yrs old) as i can go for long term plans as well?
please help me in this regard.
Niloy
Dear Neo,
If your primary objective is to save taxes, then stay away from any insurance policy.
The following are the options I would advise.
1. PPF
2. ELSS
Distribute your tax savings between PPF and ELSS. PPF brings stability since it is a safe investment. ELSS offers growth on the long run.
Regarding the stock market crashing, now is actually the time to invest not stay away from it. And a lot of people do not understand that now is the time to actually invest for long term.
Thanks,
Raj
Dear Raj,
I appreciate your work and blog.
An SBI life agent is pushing me for SBI Unit plus child plan.
I am 30 years old and a a Baby Boy of 9 month.
I want to invest 25K per annumn in childeren plan to make sure his education investment needs.
Please advise about this plan.
Thanks
Amit
Hi Raj, Thanks for ur blog.
I am planning to invest in SBI Life - Unit Plus Child Plan for my child 4 of age now, for 3 year PPT plan, i.e. 84000/- upto 3 year. It would be long term investment around for around 15 Yrs. I have gone through the others posts and hope now you have already studied the above plan's pros & cons. Please let me know is it a good planning to invest in ULIP as mkt is quite down these days. or any other thing to take care.
Ravi,
Please stay away from 3 or 5 year plans. If you are planning to save for a goal after 15 years, then ideally you should opt for a plan which lets you build your corpus by investing for atleast 10 to 15 years.
Any plan which requires you to invest for 3 years are not in your best interest.
-Raj
Hi Raj,
This is a great post and what I am amazed at is that you have been answering to comments since so long! Awesome!
What I have gathered from your opinions is that Bajaj Allianz has the most hidden charges and like many people I have invested in them without proper background study. I know that was a wrong decision.
In any case, I have 2 plans with them in which the yearly premium is 25000 each and life cover is 10X.
The policy is Capital Unit Gain and fund is Equity Index Fund II.
I have paid 2 annual premiums so total of 1 lakh in last 2 years. Currently, as per their online system, the value is around 60,000 (both policies put together)
Both the policies have a minimum 3 year premium paying period. One of the policies has a lock in for 18 years (for my kid), the other is free to withdraw after 3 years.
Now, I have no intention of pulling out my money in the short term or stop paying premiums after the 3-years mandate as it does not make sense.
I also know that I need to and want to invest in other avenues, but being the single earner putting in 50k a year in Bajaj Allianz, I am unable to do that (I also have other investments like PPF, 80CCC, LIC)
After maybe 7-8 years or so, I do want to divert that money elsewhere with the assurance that my fund will grow despite their charges and market conditions.
I have 2 questions:
1) At what kind of value or return % should I stop paying premiums?
2) How should I balance the debt/equity? How should I decide when to switch and how much to apportion in each?
Thanks in advance,
Sam
Hi Raj,
I had taken icicipru life time super insurance policy 2 yrs back which requires to pay a premium of rs18000 per annum..its present fund value is rs25000aprox..when i log in my account, it shows nav rate 8rs approx n 3100 apprx units...so can u tell me if nav value increases, then is it a good sign for me,,hw the units will be decided??
Hi,
I have taken ICICI prudential Life Time Gold for tax saving.I have to pay Rs 70,000 as premium for three years.But,now I want to surrender the policy.Please let me know how much surrender charges are deducted.I took the policy on 31Mar,2009 and now it is almost three months.
i am looking for best child plan. I have gone through some plans which are ULIP based. agent from Max Newyork is asking me for Smart stepping plus plan of children. i am confused for same now, how i can decide its best for me or other company plans are more benificial.
Hi Raj,
This is great work from you.We all are really thankful to you for guiding us.
Many of the plans and salesman gives false promises and people gets trapped in this.My agent for ICICI lifetime has even a list of address of people who got around 200% of profit by investing in ICICI life time, but in reality around 99% of people gets around 10-15% of profit.
Raj, As you have spent so much years in this, do you have a list of plans with the charges they deduct and the expected % gain after 5 years.That will be really helpful to all of us.
Regards
Sreeraj
Dear Mr. Raj,
Need your advise.. I am 38yrs old and my kid is 6yrs old. I have been looking for some child plans (ULIPs) as I am not comfortable with MFs. My agent has suggested me LIC Child plus. I have signed up for this and I am paying Rs.5000/month (Rs.60000/annum). I am not sure how good is this Ulip, so I have decided to sign an another one with SBI (Unit plus 2 child plan). As I am yet to sign this one, need your advise on these ULIPs. Are these good? Are there any other better Ulips in the market? Can you suggest? Is my decision to invest in ULIPs is good? Thanks in advance. Murahari.
You should have invested in MF. Since ULIPs gives you very little insurance coverage. Otherwise you can go for a term insurance.
Hi Raj,
Good work. I'm Sri, 23 yrs old. I'm beginner in stocks,bonds,etc.. & but interested in Mutual Funds. I need some good MF plans with short-term & medium risk. Could you please advise for my expectations. Thanks.
Hi Raj,
I'm beginner in Mutual Funds. I need good plan for medium-risk & short term. Could you pls advise for my need. Thanks.
Need your advise.. I am 41yrs old and my kids are 9yrs old and 5 yrs old. I have been looking for some child plans (ULIPs). I have just invested in sbi smart series II around 99,000 per annum for 3 yrs, I have decided to sign an another one with SBI (child plan). As I am yet to sign this one, need your advise . Are these good? Is there any other better suggestion from you? Can you suggest? Is my decision to invest in ULIPs is good? Thanks in advance. Munavvar
Hi Mr.Raj Gopal Vuppala
Can u please give me suggestion what to do. I am investing in Life Time Gold since 2008 i;e already paid 3 premium of Rs. 120000(Rs. 20-20 thousand of two policy). If I surrender I will loose 2 %. so what to do should I continue for 2 more year i.e. 5 year thn I withdraw. Please suggest me or partially withdrawn if yes how much I can do it per year.
Thanks
Philip
Hi
sir, can u please give me suggestion what to do. I am investing in Life Time Gold since 2008 i;e already paid 3 premium of Rs. 120000(Rs. 20-20 thousand of two policy). If I surrender I will loose 2 %. so what to do should I continue for 2 more year i.e. 5 year thn I withdraw. Please suggest me or partially withdrawn if yes how much I can do it per year.
Thanks
Philip
Dear Raj,
I am Satya, My age is 29. I have LIC jevan anand policy for 10lakhs with time period of 21 yrs.for which i pay perium of 51,000 every year. My query is this policy good one. And right now i am looking at a long term pension plan which give more returns with covering life risk and i can invest around 50k per year can you please sujest me something.
Thanks
Satya
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