There is no dearth of complex financial products which are meant to benefit. Benefit the seller & distributor that is. And sales pitch while investing make them sound irresistible!
While there are financial products which can benefit end user, the fact it that often facts are obfuscated and misrepresented to sell a product which benefits seller more than the buyer. The end result is that the buyer get commuted to a product which doesn’t provide him much benefit!
Here are 3 types of sales pitch you should be skeptical of while investing!
(Whether you want to believe in it or not is your choice – but avoid taking them at face value!)
1 – Guaranteed returns/ 100 percent safe/ Assured growth
Sometimes this may be true. Sometimes it may not be true.
Even sub-optimial returns are guaranteed returns. No? That they may not beat even a simple bank deposit in long run, also often holds true! (Let the concepts like time value of money, bank interest rate etc. go for a toss!)
Worse, there may be some risks which may be underplayed or not highlighted altogether. For example
- The price of this house will definitely double in 3 years (Huh! What is the guarantee?)
- Take this car loan and invest in stock markets. They definitely give (12/15/18/ insert any double digit number) returns annually! (Yeah, and is it risk-free too?)
So, when you are pitched any such product with “assured” – try to get some sense of what the possible risks may be. These products, may give good returns – or may be not. Decide for yourself!
2- Double/ Triple benefit product
This especially forms a major sales pitch for products like ULIPs, endowment plans etc. Insurance, investment and tax saving! What they don’t tell is that there are better avenues to invest (with whatever your risk profile is!), insurance cover is bad and there are other investments (With better returns) to do tax savings!
(Related – Why you shouldn’t mix insurance & investments)
Another example – Buy a house for investment – benefits like sure shot capital appreciation, assured rental income add to that tax benefit on home loan! (Make your own judgement on if they are really worth it!)
3- I will suggest what is best for you
There are financial advisers/ relationship managers who may genuinely advise what is best for customer. But probably they are too few.
Reason – Sales targets, and commissions!
So for all those loans or endowment plans or ULIPs or exotic investments – they may probably not be the best for you. But they may be good for the person selling. Eventually, you and not the RM/ salesperson or anyone need to decide what is best for you!
One counter argument can be that – whatever the sales pitch is, it does give benefit.
True. (Maybe, in several cases)
But there are simpler products which give better returns. For example, why would someone, who does his/ her calculation take a product with 6% returns (And a minuscule insurance coverage) when a simple bank fixed deposit can give better returns?
What are the other dubious sales pitches have you come across while investing?