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

Investing has some simple rules, but things get difficult when we try to do something beyond our comprehension. A perfect example of this is misselling. And to answer how often we fall victim to mis-selling, Chenthil Iyer, SEBI Registered Investment Advisor, said: “Financial awareness is very low in India and therefore it is very easy to trick people into buying products that are unsuitable for them or are irrelevant. “

How do we end up buying the wrong products?

The tax season: The January-March quarter of the fiscal year is when most investors make last-minute tax-saving investment plans. And in a hurry, investors tend to buy any financial product sold to them that can save taxes, and the most common are life insurance lump sum plans. This is a classic example of mis-selling.

“These are highly inefficient from an investment point of view and only bring very low returns over long periods of more than two decades! After entry, these products have very high exit loads because the buyback values ​​are a fraction of the amounts invested,” explains Iyer

Promising very high return on investment: Individuals are attracted to a high return on investment without caring about the risk involved. “Therefore, risky products such as deposits in chit funds, low-standard local cooperatives, etc. are sold which, while bearing high interest rates, can have a high risk of default, which only comes to light when a major default occurs,” he claims

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Investing without a goal: A key reason for attracting fake products to our portfolio is the fact that most of us do not have a goal-driven approach with a reasonable investment horizon.

For example, a financial product such as an equity fund would not be suitable for investors with a short investment period. But sometimes we are encouraged, mostly by friends and colleagues, to invest in them just because they produce good returns in a bull market.

Well, this is less of a mis-sale and more of misinformation, as your friend or co-workers will not receive any monetary reward from it. But if you look at the bigger picture, he/she does it to prove his/her investment acumen. And to do that, your friend actually sells an inaccurate product.

How can we protect ourselves from bad sales?

There are two parties involved in a bad sale – the buyer and the seller. While it is the regulators’ responsibility to manage the sellers through rules; the responsibility for the application of these rules lies with the buyer.

How we can save ourselves, Chennai RIA Renu Maheshwari from Finscholarz explains: “There is no free lunch. If someone offers a free service, understand where he/she will make money from. If you fail to pay for the Services; then you are sold (can also be wrongly sold).”

An investor should only deal with registered and regulated listings e.g. B. SEBI-registered investment advisers operating under the strict investor protection parameters mandated by SEBI, she adds

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

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