Investors Beware! In March-end rush, do not fall for these tricks banks play in selling MFs, Ulips

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Updated: March 29, 2019 1:07:26 PM

Here are few such sales pitches that you may hear walking into some of the bank branches.

tax saving, Investors, MFs, Ulips, investment products, PPF,FD,goalsChoose to go with advisors who help you evaluate your financial needs and goals and then decide on the investment products.

March 31 is closing in and with that the tax saving season for the financial year 2018-19 will come to an end. To make taxpayers invest in the schemes and plans of their choice, some salesmen could be using the marketing spiels to lure investors into their trap.

Walking into a branch of most banks, the scene is the same as salesmen are falling over each other in order to collect funds from investors. With high sales target, the sales pitch at times may mislead the investor in locking funds in an unsuitable investment product. Here are a few such sales pitches that you may hear when confronted with a financial service salesman in a bank branch.

1. What they say: PPF, FD will not give you high returns, invest in Ulip instead
If you are interested in opening a PPF account or a fixed deposit, it is likely that you may be asked to invest in a Ulip instead. While PPF and FD are debt assets and comes with a fixed and assured return, the Ulips are market-linked plans and do not assure any returns. They both cater to different needs and suit investors with a specific risk profile.

What to do: Use PPF for long term accumulation of tax-free funds as a part of the debt in your investment portfolio. FDs come with a low rate of interest and barely beat inflation and hence not suitable in the accumulation of wealth. They work well in the conservation of capital and in meeting regular income needs. Ulips suit those who lack financial discipline to save for long term goals, hence opt for them if the need exists.

2. What they say: This product comes with guaranteed returns
Investors looking for fixed returns are also offered an alternative in the form of Guaranteed Return insurance policies. Remember, guarantees always come at a cost and they are traditional insurance plans with low returns and inadequate life cover.
What to do: Opt for low-cost, high cover term insurance plans for your protection needs.

3. What they say: Invest in this top performing ELSS

Your mutual fund distributor may be asking you to invest in any of the top performing schemes. However, the returns are as on date and the funds that are in the top quartile today may not remain at the top and be performing in a similar manner after 3-5 years.

What to do: Do not base your investment decision solely on the short-term performance but consider funds showing long term consistency. Also, invest across sectors and market capitalisation while investing in 1-3 ELSS so that diversification plays its role.

4. What they say: Buy Ulip or traditional plan instead of term insurance as there’s no maturity value in the latter. Also, you might be told to invest in Ulip for only for five years.

What to do: When it comes to buying protection, pure term insurance plan fits the bill. Do not fall for any assurances in a Ulip or a traditional insurance plan. In Ulips, the costs are front-loaded and hence buying it for five years may not be of any help. The reason to buy any insurance plan varies and hence do a proper need-evaluation before buying insurance. If you have already been sold any such insurance policy where you feel a mismatch between the need and features of the policy exists, you may return the policy within the ‘Free Look’ period of 15 days from receiving the policy documents.

5. What they say: This investment comes with assurance of monthly returns
Typically, senior citizens walking into a bank branch for opening FD are splashed with various offers ranging from Balanced mutual funds to insurance polices to unit-linked insurance plans. They offer such products as an alternative to bank FDs.

What to do: Stay away from the misleading statements suggesting assured monthly returns from MF schemes based on their previous history. Also, senior citizens with no financial liabilities may very well stay away from Ulip or any kind of insurance plans.

No investment product may be good or bad as it depends on one’s need and risk profile. Choose to go with advisors who help you evaluate your financial needs and goals and then decide on the investment products. And, importantly stay away from those who will suggest an investment product right in your first meeting.

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