Yesterday, one of my friend was talking to me. He has been investing in some mutual funds for last few years. The performance of his systematic investments has been good and he has profited from the recent stock market rally. In that context, he mentioned that he will have some surplus around September as one of his LIC policy will be maturing.<!–more–> I casually asked how much he will get from the maturing policy? He told me that he will be getting around 5 lacs. Out of my curiosity, I asked how much and how long have you invested in this scheme. He told me that he has been putting in 35000 rs every year since August 2000. I was stunned to hear that after investing 35000 every year for 15 years, he will be only be getting back what he invested. I did not ask more details. May be he underestimated how much he will get back but there is no doubt that he was ripped off. Now just to see how much he would have got had he done an annual SIP of 35000 since August 2000. I did this analysis using HDFC Top 2000 Fund (Growth) as it has been one of the most well known fund and most mutual fund investors are aware of this.
PLACE FOR CHART TO BE ADDED
So, my rough calculations suggest that he might have accumulated a corpus of almost 40 lacs had he chose HDFC Top 200 fund instead of his insurance policy. Now this brings us to the issue of rampant mis-selling in which insurance/mutual fund agents often recommend high cost useless product to their clients. It is the job of an investor to take advise from only qualified advisers. Advisers who are not only knowledgeable but are also honest.
Below is a small check-list which will help you in identifying dishonest financial advisers:
- Any advisor who tells term insurance plans are wastage of money as you don’t get your money back unless you die.
- Any insurance agent who pushes you to buy high cost ULIP,endowment plans from insurers while discouraging you to buy a term life insurance.
- Any mutual fund distributor who pushes close ended funds.
- Any mutual fund distributor who asks you to invest in equity fund and do a systematic transfer in liquid/debt fund (yes it happened with one of my relative)
- Any advisor who advises you to buy sectoral fund only.
So above are the signals you should look at while engaging an advisor or distributor. If you want to share your experience with fraud of an advisor, please do so.