Business

3 ways we are sold bad investment products. How to avoid these

Investing has some simple rules but becomes complicated when we try to do something beyond our understanding. A perfect example of this is false selling. And in response to how often we are the subject of mis-selling, Chenthil Iyer, SEBI Registered Investment Advisor, said “Financial awareness is very low in India and hence it is easy to fool people. buy products that are inappropriate or irrelevant to them. “

How do we end up buying the wrong product?

Tax filing season: Quarter 1 to March of the financial year is the time when most investors plan their tax savings investments at the last minute. And in a hurry, investors tend to buy any financial product sold to them that can save taxes, and most commonly life insurance financing plans. This is a classic example of false selling.

“From an investment perspective, these are very underperforming and offer very low returns for longer than two decades! After importing these products there is a very high exit load because the surrender value is only a fraction of the amount invested,” explains Iyer

Promises a very high return on investment: Individuals are attracted to the high return on investment without regard for the risks that come with it. “Therefore, risky products such as deposits in chit funds, low standard local co-operatives, etc that can bear high interest rates but have a high risk of default will be sold, only being brought to light. when a major default occurs,” he asserted

Investing without a goal: A major reason for attracting the wrong products in our portfolio is the fact that most of us don’t follow a goal-based approach with the right time investment.

For example, a financial product such as an Equity Mutual Fund would not be suitable for investors with a short investment horizon. But sometimes we are invited by friends and colleagues to invest in them just because they are making good profits in a bull market.

Now this is not mis-selling and more misinformation as your friends or colleagues don’t get any monetary reward from it. However, if you look at the big picture, he/she does it to demonstrate his/her investment acumen. And, to do that, your friend is actually selling the wrong product.

How can we save ourselves from being sold wrong?

Wrong selling involves two parties – the buyer and the seller. While regulators are responsible for regulating sellers through rules; The reason for using these rules lies with the buyer.

On how we can save ourselves, Chennai RIA Renu Maheshwari of Finscholarz explains, “There is no free lunch. If someone is offering a free service, understand where they will make their money. If you do not pay for the service; then you are being sold (possibly wrongly sold). “

Investors should only engage with registered and regulated entries e.g. SEBI Registered Investment Advisors who work under strict investor protection parameters set forth by SEBI , she added

There are many checks and balances in the current system for investors to protect themselves. Educate yourself and stay safe!

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