The most mis-sold financial product

We strongly feel that ULIP is the most mis-sold financial product in the market. We have seen a lot of individuals who have ‘invested’ in ULIPs without even knowing the ABC of what it is. Most of the folks who sell ULIPs are even unaware of what they sell. The thing often repeated by the person’s marketing these ULIPs are ‘Growth fund of our ULIP has yielded returns above 40% for the last three years consistently’. People get sold immediately and later grieve over it.

One of the oldest player in Insurance industry sold a ULIP plan and made news before a couple of months. Thanks to its agents who mis-sold it effectively. IRDA (Insurance regulator) also made a public statement on this one condemning such practices. Such things wouldn't help unless the buyer is AWARE and AWAKE.

We went through the brochure of a ULIP plan and found out the following charges being levied.

1) Premium allocation rate for the first year was 40%.(i.e. , if I invest 10000, only 4000 will be invested…guess what happens to Rs 6000 !!!.The premium allocation however gets better over a period of time)
2) Fund management charge. (Around 1% p.a)
3) Surrender charge for early surrenders.
4) Policy administration charges. (Rs 20 per month!!)
5) Mortality charges (for getting you insured)
6) Switching charge ( growth to balanced switch ,etc) Rs 100 for each extra switch
7) Partial withdrawal charge.
8) Revival charge (Rs 250)
9) Miscellaneous charge on top of it. ( charges for any alteration in the contract!!)

And nobody tells that the 40% plus return has been because of the phenomenal stock market performance and the same can’t be expected year on year.

The best thing is to have a term insurance policy for covering your life and invest through SIPs in mutual funds, if you want to get the benefit of equity (where the cost of investment is only the entry load and fund management cost, which may add up to 5% p.a on the higher end).
When a ULIP sales person calls you next time, be ready with the right questions.

Spotting opportunities from the past

Everybody is good at spotting opportunities from the past. During the last two years the real estate and stock markets have raisen to phenomenal heights. Almost everyone whom I meet talks about the opportunities they have lost. example. ' If I had invested in sensex two years back..', ' if I had bought a flat /plot 10 years ago in XXX area ...I would have much ', etc.
Actually any day and any year has equal number of opportunities. Anyone can spot opportunities from the past. So, no matter pondering in the past only. A prudent person should start seeing opportunities that are yet to be seen by the masses and be an early entrant into the new investment opportunities or business ideas. The early entrants or the trend setters are the ones who gain the most out of any opportunity.
I am not suggesting you to forget the can always do, but try to learn a lesson or two from the same so that you get the ability to spot the opportunities that present/future holds. No point only lamenting over lost opportunities.

Two obvious choices in ELSS

We have been receiving a lot of mails asking to suggest good ELSS funds. HDFC tax saver and Magnum tax gain have been consistent performers and are five star rated funds from Value research.

Both of them have had strong track records and you can opt for an SIP in any of the these funds.

Fund Name, Launch Date ,Risk Grade, Return Grade, 5 year return

HDFC Taxsaver ,Mar-1996, Low, High, 49.87

Magnum Taxgain,
Mar-1993 ,Below Average ,High ,57.66

* data source -Value research

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Equity top up investment

I have seen many people who are scared of investing in equity either directly or through mutual funds. This is mainly because of the fear of loosing capital or at times due to low understanding of equity as an investment instrument.

You can create a debt portfolio plus a equity top up in this case. This will give
100% protection to your capital amount invested.
Will help you increase your returns through equity.

How can you achieve this.

Alternative 1

You can choose to invest the amount you have in a Fixed Deposit and opt for a monthly or Quarterly interest payout option.
Alternatively you can also choose to invest in POMIS ( Post office monthly income scheme) which pays out monthly interest rate.
You can invest the interest so earned in an equity mutual fund through the SIP (Systematic Investment Planning) route.

Alternative 2

Suppose if you have Rs X with you now, you can invest such an amount in an instrument like F.D/ NSC for a period, say 5 years. You can invest amount X-Y in F.D/ NSC such that you will receive Rs. X on maturity. The remaining amount (i.e. Y ) can be invested in Stocks/ Equity/ Balanced fund based on your convenience.

Thus you can use equity as a top-up and sleep without the fear of loosing your capital.

SIP returns - Analysis

Of late, we have been receiving a lot of mails asking for us to suggest some good funds to invest in. We suggest that you always invest in funds that have a proven track record and have been through various market life cycles.

One more thing, always try to follow the SIP route , as you can handle market volatility better. More important is time that you spend in the market.

See the following chart (source: economic times) which shows the return from proven funds through SIP over a period of ten years.

This chart shows us the power of SIP and also the importance of patience.

Also read Traffic signal ,SIP your way to wealth,Time in the market is more important

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Real Estate report

For those of you who missed this report on real estate in china!!
You can calculate the ratio ( rent to price) for any area based on this and see where that place stands .
"The ratio between house prices and rental rates in several of China's leading cities has soared well above levels that often indicate a property bubble, the Xinhua agency said on Saturday, quoting an official study.

The report from the Chinese Academy of Social Sciences said the price-to-rent ratio for second hand homes had crossed the danger line in large urban centers including Beijing, Shenzhen, Shanghai and Hangzhou.

The ratio measures the rent for 1 square meter of floor space divided by its sales price. The lower the ratio the more healthy the housing market, Xinhua quoted CASS researcher Shan Jingjing saying.

An increase in house prices not matched by a rising rental market can signal an unsustainable price spiral, the researcher said.

"The international warning line is 1-to-200. Once the ratio goes over the line, the market is in danger of a bubble," the report quoted Shan saying.
In the downtown areas of the four cities Xinhua listed, however, the ratio had already reached between 1-to-270 and 1-to-400, the report added.
CASS earlier this year urged Beijing to tighten its credit clampdown on the country's property sector to prevent the sort of real estate bubble that crippled Japan's economy in the 1990s"

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Traffic signal

My friend and me were driving last weekend in one of the busiest road of Bangalore. As you all would rightly predict, there was a big chaos (traffic jam is a very small word for that situation). We were stranded some 500m before a busy junction and we were not moving for almost 30 minutes. My friend said,’ Hey, I think the signals should have taken an off today and the police man should be managing the signal’. When we finally got to get past the signal, I found that what my friend said was true. The Signals were not working and so a cop was trying to manage the show. You would also have faced this much number of times.
I would not like to blame the poor cop as he was trying to do his best. But a signal that works based on a timer does the job much more efficiently.

Wondering why I am writing all this on Ideas money???

When you try to time the markets and enter or exit the markets, your situation is similar to that of a traffic cop trying to manage the traffic. An SIP can do a better job with your investments as it keeps working automatically as programmed. (Similar to that of a timed signal). Although you can’t expect the best return from an SIP method, you can at least be sure that you don’t get into a chaotic situation.
Now, don’t ask me the question that why there is a cop in every junction with an automated signal. I am searching for an answer too!!!

SIP your way to wealth

Tax saving FDs, an attractive option.

For those of you waiting to choose an investment option for tax saving under sec 80 c ( 1 lakh investment limit) , Tax Saving FDs are a compelling option now.

Investment in ELSS funds (Tax saving equity linked mutual funds offered by mutual funds) remains the most attractive option for those who are willing to take risks.

ELSS Advantage

For the investors who are not willing to invest in stocks, Tax saving FDs offered by banks seems to be the best option. Interest rates are offered up to 9.5% on such deposits with a five year lock in period. These deposits score over NSC because of the higher interest rate and a shorter lock-in period.


Comparing the FDs with PPF, FDs score over in terms of interest rate and lock-in period. But PPF fares better in one sense because the interest you earn on a PPF account is not taxable.

Debt Funds , FMP vs  FD

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These are just opinions/ ideas exchanged. No one can claim us responsible for any investment failures /losses based on the ideas expressed here.

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