New Investors – Beware From Miss-selling !!

When you are a first-time investor you may get attracted to a lot of advertisement/hoardings/sales pitch where you are shown high returns. Any investment with such euphoria ends up with  more painful experience than satisfaction. Rajeev too went through this situation. Out from his college, the experience of corporate life for him is completely different. He has a lot of aspirations in his life and wants to accomplish them. He likes to read a lot and so he has been reading about benefits of investing early. So he decided to start some investments from his little savings.  He started searching and found companies looking to capitalize on Cannabis, luring him to make quick money in a short span of time. Without giving a thought he went ahead with investment only to suffer a huge loss days after and was scary of investing then.

What Rajeev faced is faced by many new investors. Big hoardings of guaranteed returns and messages on mobile of quick money options lured them to think short term. Taking benefit of lack of awareness  even agents miss-sell by pitching the wrong product to them. Thus, it’s important that every investor either approach the right advisor or keep themselves aware on the ways and means from which they may be lured to commit a mistake.

Here are some of the miss-selling prevalent in the industry especially to new investors and where they should be careful in making a choice:

1. Stock Tips

There are numerous firms, small and big, flourishing across India which are luring investors for making quick money on their stock tips. They will offer you the advice on a fee and send you daily tips on stocks to invest which can realize stupendous results in a short period. Today, WhatsApp group of such firms or messages on your mobile for such advice is growing. Although few of them have faced regulatory actions but many have been still doing it. What they don’t tell you is that the risk of these tips not working is completely on you. So next time when you receive any message or offer to join a WhatsApp group then think wisely as there are no shortcuts for creating wealth.

        2.Insurance

Corporate employees come across many financial education programs in their company premises. Banks, Financial companies or even individuals engage with employees to teach them about wealth creation. However, a large number of employees have face issues of miss-selling where the representatives or agents have sold them the wrong product.  They have been sold a ULIP or an endowment  plan with long-term benefits for whatever needs they have illustrated. The catch here is the corpus numbers after 20-30 years which look substantial in today’s value but will not be enough. Moreover, the miss-seeling happens due to the commission structure involved in the product. At young age term insurance do not fetch much  revenue for them and so hardly being advised. Thus, if you are a first-time investor and  insurance is being told to you as a good investment product you need to go much in detail to see if the contribution justifies for your objectives.

       3. Real Estate

Many from a good college start their professional career with higher income. They have a good surplus to invest and even high income to afford EMIs. There have been many cases when such first-time investors have been duped by Real Estate brokers or companies. The reason for this is big ads which promise fascinating returns that too guaranteed if you invest in the property.  A 12% guaranteed returns is very common on a commercial property or a plot. Unaware on the nitty gritty few get their hand burned in such kind of avenues. It’s wiser than that before rushing to  guaranteed returns consider doing a bit of research to find out what lies beneath the  offer.

        4. Tax Saving

For young investors, even tax saving can become a bad decision if invested in a wrong product. I have met few corporates and have seen individuals seeking help to plan their taxes in the month of December – March. Even the education programs from bankers are heavy inclined towards the second part of the financial year knowing there is a hurry to invest due to fear of tax deduction from salaries at the end. Most of the employees get engaged with their bankers but they get wrong advice because bankers are heavy inclined towards insurance selling. The tax saving then becomes a burden every year which they have to readjust later.

        5. The Number Game

What most miss-sellers focus is on the numbers. In today’s value, they will show you the corpus you will accumulate after 20-25 years. It is surely a  good number but  when you factor in inflation and taxes the corpus will deplete.  Similarly, in an asset class like real estate, much focus is laid down how much it will grow i.e. 100 times or 300 times or 1000 times . But when you start calculating the yearly returns the picture will suddenly change. The return will look equivalent to what other asset class offers. The decision then proves to be wrong because it did not serve your objective.

There are many other situations when first-time investors will be picked for miss-selling. So many NRIs have been sold Endowment Or Pension products without understanding their situations. Stocks tips through messages are the new mode of advice today but who cares for the result. To avoid getting into a miss-selling trap understanding about your own needs is important. So if you are lured to any offer do understand where it is coming from and where it will lead you to.

If you have been sold any wrong product taking advantage of your lack of awareness share your experience here…

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