Recently I saw a perfect example of ULIP misselling. One of my friend’s parents gave their money to a close friend who was working for some Investment firm and assured them of doing great investments on their behalf.
The total money involved was more than 10 Lacs. I don’t know what else he did, but he bought a ULIP from their money and its the perfect example of miss-selling here. Lets see it in details.
Now 48% goes in Premium Allocation charges, rest of the money will grow at moderate return because it was mix of bear and bull market which the money was invested.
Why was it invested in ULIP first of all and that too Rs 3 lacs as premium!! This is one of the costliest ULIPS in market and has to track record. Why was family financial needs not considered before investing? Why was their risk-appetite not considered?
What kind of agent is this? He takes advantage of trust and invests in something which gives him maximum commission. There was no proper communication about charges and no statements reached them on time.
What is miss-selling here?
Giving “Wrong-Information” is not a big issue, the bigger issue is not giving “any information”. One of the reasons why this kind of things happen is lack of accountability on agents side. You take the product and sign the documents means you are responsible for your decision. While that is true legally, its totally unacceptable morally.
The only thing the investor can do here is make an issue out of it and tell the Insurance company that’s agent miss-sold the policy to him and did not tell him about the charges. Worst thing is investors don’t even know about the “Free Lookup Period”, which is 15 days from purchase of policy before which Investor can cancel the policy of they don’t like it or change their mind.
UPDATE
This is an update after my friend Rishi, whose case we are discussing commented on this article, I am putting up some more thoughts in this below. In case he takes some legal action on this matter. I can think of following things which will be useful and important to quote.
1. As everything was done legally, documentation and signatures taken from investor etc etc. The one thing which can make your case stronger is “explaination” from HSBC people that on what grounds “that Ulip” suited your needs.
How did they come up that this ULIP was the best choice for your family, I hope being the “trusted” and “portfolio managers” they think of your profits and hence they must have figured out why this ULIP was the best in the industry for you guys.
2. How do HSBC products best for you people (i hope 70-80 products they choose were HSBC products)?
3. as per IRDA “it is the moral obligation of the insurer to maintain the ethics and spirit of business across its workforce”. The mere fact that premiums were stopped after 1 yr and now your people are not happy with this shows that obviously you people were not informed well about the cost structure in the start.
Finally this is more of a matter of “Unprofessional Behaviour” than miss-selling per se. I am not sure how much HSBC will help you, as they generally pass the buck on “agent” and “investor who invested”.
You might have to take this case with IRDA. You must first talk to Bank, agent etc and then after you are not satisfied with them, you should go complain at the IRDA ombudsman: https://www.irdaindia.org/ins_ombusman.htm
The ground of plea should be based on “monetary + psychological loss”.
You can read here Confession of an Insurance agent in his own words
Please share if you think there is a good way for getting justice on this matter. Your comments are valuable? Should this is taken into court?
Filing Income Tax Return is an important thing and as the date for filing ITR is approaching you should have a clear idea about how to file ITR. But is it mandatory to file Income Tax Return?
A lot of people are confused about this simple question of when to file your tax return, In this short article lets see what are the conditions under which you need to file your tax return.
Who should file Income Tax Return?
As per Indian Income Tax Act 139(1), it is mandatory to file Income Tax Return, for every individual who’s income exceeds the exemption level.
People say that if you don’t have to pay tax , you don’t have to file returns which is not true totally. Lets see the simple rules.
Rule : You have to file your tax returns if your Total Income for the year exceeds the exemptions limit. That’s it !! This is the only rule which applies.
Exemption limit can be different for male (1.5 lacs), female (1.8 lacs) or senior citizen (2.25 lacs). So if your Total income for the year exceeds your exemption limit, you have to file tax.
Should I file Income Tax Return even if I don’t have to pay any tax?
Didn’t you read what is said above :-). The only rule is already mentioned above. You don’t have to pay tax. This can happen in two cases.
Case 1 : Income itself is below exemption limit
In this case you don’t pay tax and don’t file your Returns.
Case 2 : Your Income exceeds, but not taxable income
Though your Income exceeds, but After all the exemptions and deductions like 80C investments, HRA, Home loan interest exemption etc etc, your taxable income is below your exemption limit. In this case you don’t have to pay tax, BUT !! you have to file tax returns because your income (not taxable income) was above the exemption limit.
What are the other cases when I have to file the returns?
There are other cases also when its more than paying tax. lets see those cases
If you have some form of losses carried forward in subsequent years to write off against profits in future, in that case its obvious, that you will have to file a return so that you can give this information.
If Govt itself gives you notice to file tax return, it may happen that you are cheating this nation and making black money , then tax department can ask you for details and you will have to file tax return.
If you want a Tax refund because of TDS (Tax deducted at Source by your company). This happens with people who do part time jobs for some months or with Interns in the company who are there for 3 months or 6 months and TDS is cut. So in order to get back the amount you have to file a tax return.
Watch the video given below to know why it is necessary to file ITR:
Why is it necessary to file Income Tax Return?
There are some reasons why should file income tax return, which may look simple but they have a major impact on your financial life. Lets see what are those reasons:
If you are planning to take loan in future, the lender may ask the proof of your ITR filing.
The ITR filing proof is also essential to get VISA if you want to travel abroad.
It is also important if you want to claim the adjustment against past losses.
ITR report is provided by Income Tax departments, so if you file Income Tax Return regularly on time, it will make your future transactions easier without any complications.
In some states, you can not but an immovable property if you don’t have the Income Tax Return filing proof.
Besides all these reasons, filing Income Tax Return on time makes you a responsible citizen.
Do you have any question or Doubt in Mind regarding Financial Planning , Insurance , Investing ? This form can be used to ask any question from Jagoinvestor . Make sure what you ask makes sense 🙂
I came up with the first ebook on “Basics of Technical Analysis” . For now I have used the data of my earlier posts only for this ebook , but it has all the data at one place and hence will be good for readers who only want to concentrate on Technical Analysis . Download Link
Please let me know how is the Ebook and If you are finding any difficulty in downloading it . Also feel free to share the ebook with your Family and Friends . No issues .
I hope to come up with another Ebook soon , on “Basics of Financial Planning for New bees” .
As always , Shyam Pattabi came up with an excellent article on his blog where he shares his views on how mis-selling happens in India and why people fall in trap of “advice” and “calls” from agents and other financial services companies , And his analogy on he post is excellent . I came up with similar topic some days back on “Why do you need a Financial Planner” , have a look on that too .
“Investors will not have to pay an entry load for investing in mutual fund schemes anymore. They will instead pay a commission to their distributor or advisor directly and the quantum of the upfront commission would be mutually agreed upon.”
More Competition and hence little cheaper for Investors
Now agents will not be getting commissions from Mutual Funds companies which means that now there is direct competition among Agents. The agents can only ask for more if he really gives good service to buyers else they have to settle with a low commission which will be decided by customers.
This means now we can bargain with the agent on commission percentage and if he is not ready with what we offer him/her. We can look for someone else who is better and fits us.
Higher Quality of Service and more transparency in Market
Now agents will have to deliver much better quality of service and be more transparent with investors as their bread and butter is directly linked with Investors and not with the Mutual Fund Companies.
Lots of agents will now move to sell ULIPS rather than Mutual Funds
This move will also force lots of mutual funds agents to shift their focus on ULIPS and similar products which have commission linked with premium paid by customers rather than fee based model like we now have in case of mutual funds. This means more miss-selling in ULIPS is on the cards.
See the following New Video To understand
Update: thanks to income.portfolio for this.
AMC’s are allowed to use 1% of redemption in mutual funds for commission to agents and all the marketing costs. Its the money from exit loads which has to be utilized in commissions and other marketing costs. Most of the mutual funds have less than 0.5% of 1% of exit loads at this point and with this rule of SEBI, it can not go above 1% in future. Also it can be “up to 1%”. So this 1% will be used for every type of cost incurred by mutual funds.
Now most of the funds will have exit loads only if investor gets out in short term like 6 months or 1 yrs. Hopefully it will not be after 1 yr. So its a concern for those who are short term investors. Its not a matter of concern for long term investors as far as I think.
Also, now there is no need for PAN Card for investing in mutual funds up to Rs 50,000 through SIP as per SEBI new rules.
I am out for a 2 day weekend Trek to Kumaraparvata. So no article till Monday morning. I will post the 2nd article of “How a newcomer should start in Stock Markets?” Read Part 1 Here .
In this post, we will discuss on why do you require a Financial Planner to do your financial planning? Each and every area has an expert who understand and has skills for that profession whether it be Doctors, Engineers, Lawyers etc!
Likewise, we have Financial Planners. Now, don’t confuse financial planners with Mutual Funds Agents or Insurance advisers! NO!
Let us see some Important Points on why we need a Financial Planner.
They see your Financial situation as a whole and not just specific Parts:
One of the major issues with our country is, here each area is seen separately and not as a whole. An Insurance Adviser will randomly suggest you a policy without understanding what is your Insurance Requirement.
All that they will say is that your Insurance requirement is 8-10 times of your annual income, which is not the right way of calculating the actual Requirement. Mutual Funds advisers will just pick some Mutual fund for you without understanding your Risk-Appetite and your Future Goals.
They don’t take care of your Tax planning, Estate Planning (wills and Legal Documents) or your Cash Flow etc etc.
A Financial Planner on the contrary acts as a Doctor to your Personal Finance, who will very closely study each aspect of your Financial Life.
He will understand your Risk Appetite, your current outstanding liabilities, your Future Goals, your Future Needs and Requirements, your Insurance Requirement, your Investment needs and finally come up with a Financial Plan and Recommendations which will take care of each aspects in total.
Financial Planner will Educate you:
Financial Planners will make you logical reasoning behind every suggestion he makes. He will make sure that you agree and understand everything, so that in future you can take similar decisions yourself.
Has any Mutual funds adviser told you why SIP is better for you? Or Why You should expect great returns in long term from Equity?
Financial Planner wants to make your Financial Life Better:
Financial Planner’s goal is not limited to Insurance planning or Investment Planning. In fact a Financial Planner is trying to make your overall Financial Life better and paves a smooth financial path for you, which you can start walking on.
Your overall Financial life is made up of different components Insurance Planning, Investment and Retirement planning, Estate Planning, Tax Planning etc etc. He will take care of all these aspects.
Financial Planners are Certified or they under Certification and have deep knowledge:
How many agents or any kind of Adviser you have seen is competent enough to advise you? What is their relevant experience in that field? Most of them are just under their respective company’s Training.
A Financial Planner should be a CFP or undergoing CFP qualification. CFP is the highest level of certification all over the world in the field of Financial Planning. You can also look for people who have deep understanding of Financial Planning and are undergoing the course.
As CFP is new in India, there are many students who are under the learning process and are very good Financial Advisers (You can count me one if you like).
They have good network base:
Good Financial planners will have excellent network of Agents and Other professionals who can be helpful to you in the best possible way. Like for example, if he recommends you to go for a Term Insurance, he may also recommend you some company’s Term Plan and may recommend you to some good and trusted Agents.
This will again be an important thing which you should consider. A Financial Planner may or may not have share in the Commissions.
Watch this video to know the importance of financial adviser:
What is the general Process Financial Planners Follow?
The first step they will follow is to get out each and every strand of information out of you that will help them to understand your situation correctly and in depth. They will try to capture each aspect of your Financial Life through a Questionnaire.
It’s like a Doctor trying to get every information about you to give you a prescription. Then they will analyse each aspect and come out with the Plan and recommendations.
They will not simply come to you and recommend you some mutual fund or insurance policy understanding if you need it or not. Infact they will do your Financial planning in the same way as you would have done yours if you were a Financial planner 🙂 .
They can also assist you in future in monitoring your Financial plan depending on your agreement with the financial planner. Just like you have your dedicated Family Doctor, see him as your Family Financial Planner.
I have enough knowledge about Products and Financial Planning, I constantly Read Financial Magazines and Blogs and keep updating my knowledge. Why should I hire a Financial Planner in that case?
Great!! If you are doing this, it’s much appreciated. You have to understand that
Financial planners are dedicated Professionals in the field. They have undergone tough training and may have much better detailed understanding of the nitty-grittes of Financial Planning which you may lack.
You may have good knowledge and understanding and you may your self take care of your Financial life to great extent. It’s you who have to answer how your Financial Life must be, “Not Bad” or “Excellent” & “Perfect”!
Also it may happen that its your un-true understanding that your understanding is very good. You may have good understanding in one field, but what about other fields?
A financial planner may also have good competence in understanding of Financial markets, Derivatives Markets, Law governing tax etc and these keep on changing and one needs to be updated with the information.
However if you have great interest in Personal Finance and already have great understanding and knowledge, you can enroll for CFP and start a new Career! Dont forget to keep in touch with me!! 🙂
What about the Cost?
Everything comes with the cost. Definitely and if you need Quality then you need to pay quality cost for it as well. But don’t be horrified by the fees you pay to Financial planners, you have to understand the difference between Price and Value.
Just seeing the numbers may make you feel over-charged, but when you concentrate on the value it adds to your life, you will be amazed. If you pay Rs X as fees to Financial Planners you will save many times of that because of the alterations and changes he has brought into your financial life.
Its like if you fall sick then you pay for medicines. No questions asked!! Either pay and save yourself and be happy OR just live in hope of it getting cured by itself, but it will actually get worse and one day kill you.
But my Financial life looks great to me, I don’t see any issues, my insurance cover is fine, my Investments are great…?
Baby, you don’t know a lot of things in that case… Life is waiting for you. There are many people who think they are totally fine and at last they are diagnosed by Cancer and most of the times its at the last stage, don’t wait so long get it checked now!!
My Family and Friends are forcing me to see a Financial Planner? what should I do?
No! You should only see a Financial Planner when you yourself realize that you need one. This is an issue with our country, most of the people do not know and do not realize that their Finances Stink!! Only when it goes out of control they will realise that time has come and by then its too late.
What is stopping you to at least get your financial checkup done by a Financial planner? He will make you realize first that you need it badly and once you agree you can hire him to fix it.
Conclusion
Majority of Indians are totally clueless about Financial planning and only it has happened that in recent years some awareness has been created about it. Most of us try to fix finances on our own without accepting that we are not competent enough to do it all!
WE need a professional. Don’t you pay to Doctor or Lawyer or any other Professional then why not hire a Financial Planner? Go for it!! Jago Investor!!
Note: For people who need my Financial Planning services can mail me
In this post we will discuss why one should really be cautious about NFOs and why in general its better not to invest in any NFO. Have you heard about NFOs and IPOs hitting the markets while markets are doing bad? Why is it so? this is a question we must answer to.
The reason why most of the NFOs and IPOs hit the markets when markets are doing extremely good is to exploit the emotional buying of investors. Its a common thing that investors tend to get in rising markets then falling markets.
So when markets are flying high and all kinds of NFOs with fancy names (some good funds and some junk funds) will hit the market claiming how different they are and how they are ought to be a huge success.
Every NFO will come with its own idea and logic, but investing is never easy and you can see true colors only after few years. They can be success or failure!
So why to go for something which can either fail or succeed, instead why not go for some existing fund which already has proven its mettle, which has given superb returns over long term and has excellent management. These funds have high probability to continue their performance.
Its like: what would you prefer? Take risk of marrying someone you don’t know or someone who is already a good friend and you know him/her over years?
Cheap NAV at Rs 10:
Most NFO offer comes with NAV of Rs 10 and the biggest myth of investors is that its a cheap fund and hence better than a fund with NAV of 20 or 100. NAV growth is nothing but growth of investments and it does not matter what NAV rate is! Rs 10 NAV mutual funds and Rs 100 NAV mutual fund will grow with same rate if their investment quality is the same. There is no reason to invest in a fund that has low NAV.
Myth of High Dividend from Low NAV Fund:
Majority of our “Educated” Agents will tell you that buying low NAV fund will help you in getting more Dividend (if you choose Dividend option) because Dividend is declared on number of Units held. So you will get more units of mutual funds if you invest in low NAV funds!
Whatever he says is true, but he himself does not know that it’s the investor’s money coming back to him and NAV value will again go down by that much value. So in real money terms, there is no benefit of dividend option. See difference between growth and Dividend options
Agents will market it very well and try to push the NFO’s for Sale:
Everyone wants to make money! What other product can be better for a mutual funds agent than an NFO!!! Agents get High commission on selling NFOs and hence they will do anything to sell it. They will spend money aggressively for Marketing as its taken back from Investors eventually and not the AMC. Caution, Be-aware!
Does that mean all NFO’s are Bad?
No! Every existing mutual funds was NFO once upon a time. You should go through the NFO Offer prospectus to find out whether the offer seems interesting and logical enough for you to invest in it. Only then you can go for it. But just understand that only a handful of all NFO’s become good funds.
So out of 1000 mutual funds only a few like 20-30 will be extremely outstanding funds. So the decision is yours! Do you want to take the chance? Or you want to wait and let it show its true colors before you get into it.
Which is the new hot NFO in the Market?
Reliance Infrastructure Fund is the new name in the market these days. All the things which I talked above applied to this too. Before Investing in it read about it in acute detail. I will provide my short view on this.
Reliance Infrastructure Fund is a Sectoral Fund (Infrastructure). This sector looks attractive over next few years. The picture would be more clear after the Budget is out because that’s when we exactly know what is Govt plan in this particular sector.
If its a bad news then the stocks in these sector will take a hit and suddenly it can become a reason for suicide for its investors. Why not wait till the budget and then 😉
Conclusion: Investing in NFOs can be like shooting in dark for retail investors! A better idea for them is to invest in something which has more probability of performing well. NFOs can be extremely successful because of their unique idea or investing style but its too tough to choose them successfully. Better to avoid them!
Before anyone asks, I must tell that its taken by a normal point and shoot camera 🙂 Its just a result of Interest and Willingness to take some good pic + Macro Mode 🙂
I did a short and crisp review of some mutual funds for a friend . thought of sharing this here.
Franklin India Prima Fund – Dividend
151/208 138/157 61/75 are the ranks for 1 ,3 and 5 year . Not a great one to cheer about .
Risk Grade: Above Average
Return: Grade Average
Tata Infrastructure Fund-G
Not a very old fund but its a good one. Infrastructure space can be a big hit considering 4-5 yrs time frame and with the blessings of UPA. Better diversify money in this space along with other infrastructure Mutual Funds.
With 25% CAGR returns since launch , its looks good.
Franklin India Flexi Cap Fund – Dividend
Numbers look good but there are better funds available.
Birlasunlife Frontline Equity Fund-Growth
Extremely good fund to have in portfolio. It has shown strong performance in all the time frame of 1 ,3 ,5 yrs and 30% CAGR return since launch. Better to stop Franklin India Flexi Cap Fund and redirect the money to this one.
HDFC Equity Fund – Growth
Again a good fund to have in portfolio.
What would I do If I were at your place.
– Stop Franklin India Prima Fund
– Stop Franklin India Flexi Cap Fund – Dividend (5k)
– DSPBR Equity or DSP Black Rock top 100 or HDFC Top 200
– Increase your Exposure in Birla Sunlife Frontline Equity Fund
– Share your 10k in UTI Infrastructure and Tata Infrastructure
This post will tell you all about why Planning is the most important and first step in the process of Financial Planning!
Any action that is to be taken needs a proper and precise planning before implementing it. I have seen many people pinging me about their investment plans or decisions to take Term Insurance or Investment plan through mutual funds for next 10 yrs through SIP.
I would like to congratulate them on their decision and action. They are ahead of most of the other people.
“A good plan today is better than a perfect plan tomorrow”
But is it enough? Is that all? Is that the initial step everyone should take? The answer is NO!! A lot of people have gone directly to the second level and skipped the very first basic level, which is Planning!
First Step of Financial Planning
The first step not making investments but planning for everything and then executing it, Why is planning important? Most of the time people concentrate too much on action and not planning. If you take actions without planning things, there will be lack of clarity ,and it will bring doubt in your mind about investment.
A friend of mine invested in mutual funds through SIP. For the last 6 months markets did good and his portfolio showed upward movement, later the market crashed and he stopped his SIP payments. I asked him why is he not continuing his SIP. To this he answered that markets are going down.
But he also said that he don’t need this money any sooner and he is making investments for his Child Education which is 12 yrs later and his investment is for long term in stock market.
His decision of starting investment is great, but investing without any planning and not knowing exactly why you are doing it is like driving without knowing were to go. You will eventually go somewhere, but that may not be your desired destination.
So what are the steps that needs to be taken before the action of Investment?
Knowing your Goals: First plan that why are you investing; what is the goal associated with your investment; Is it Buying Home? Buying Car? Vacation after 3 yrs, Retirement, Child marriage? etc…
Knowing your time frame, when you need money: This is very important because this will decide a lot of things
– The product you can invest in
– The risk you can take
– The amount you need to invest per month or year
This will make your path very clear, after this you just have to follow it without any doubt in mind.
Action and monitoring: Now you just have to take action and don’t doubt it again and again because you have cleared every doubt beforehand.
Case Study
Case 1: Unplanned Investment
Ajay is a regular reader of Jagoinvestor and after reading some articles on this blog, he decides finally that he will invest k per month through SIP
He starts a SIP with a mutual fund and now he is happy that he has been investing finally. He invests for 2 yrs and markets have gone up and down and at the end his investments are at same place where they started. So there is no appreciation in value.
He decides to take half the money out of his investments and uses in buying a car which was his plan from many years. Markets finally starts recovering, but as usual he realizes very late that this is the time to put money in markets (as all the general public realize this very late).
He starts his SIP again and now continues this for some years. He periodically takes money out of his investments on many occasions like for his vacation and his child education costs.
What is the problem with this approach?
– No predefined goals and hence no clarity on investment plan- No idea of how investment should be divided for different financial commitments and not investment as per risk-appetite and goal’s importance.
Conclusion: He started investments which was a good idea but Ajay jumped on the second step of the ladder. The first step was to plan for things.
Case 2: Planning everything
Ajay now knows that he can invest 20k per month and have to plan how to make proportionate investments for his financial commitments. He identifies his goals and how much money he would need for each.
Now he exactly knows that for which goal where & how much he has to invest. There will be no distraction in between by equity markets going up and down or any other factors because in the start itself he has factored in all the possibilities. In short Now he has a clear path and he knows how fast or slow he has to walk on it. At the end if he keeps on walking on it the way he planned Success is guaranteed.
Conclusion
Planning your finances can be boring, but its vital and most crucial part of financial planning. A person who gives much time planning things has higher chances of achieving it. Take action is second step. Planning things in advance reduces doubts about certain things, provides clarity in financial life and hence reduces a lot of issues.
Question :
How much difference do you think will happen without planning as per your view?
It simply means that we will be left with some extra surplus every year .
A male who has taxable salary of 4 lacs per year and has 1.5 lacs as exemption limit , pays around 40,000 as tax . Now , after the exemption limit is raised to 2 lacs (assumption) , there can be 2 scenarios .
Scenario 1 : Exemption limit is raised but tax rates are not . Current tax rate is not
10% for 1.5 – 2.5 lacs
20% for 2.5 – 5 lacs
30% for 5+ lacs
In this case , he will have to pay 35,000 as tax (assuming tax rates for 2008-2009) . This means a saving of 5,000 on tax from previous year .
Scenario 2 : Exemption limit is raised and tax rates are also adjusted. A common sense guess would be
10% for 2-3 lacs
20% for 3-5 lacs
30% for 5+ lacs
It must be something like that , this is the minimum we will/should get
In this case , the tax would be 30,000 , and savings would be 10,000 per year.
What can this small amount do ?
So we can save in range of 5,000 or 10,000 or someother amount depending upon the changes. What can be the value of this for us as investment point of view.
this money can be invested in a mutual fund through SIP monthly for next 30 yrs ,
5000 can make
14 lacs at 12%
29 lacs at 15%
10,000 can make
29lacs at 12%
58 lacs at 15%
Assumption is that the money can be divided in 12 equal installment and can be invested per month .
