Well this is not an article on Exchange Traded funds, but there is a link at the bottom which will take you an ETF article.

The financial services industry (like all other industries) is very smart. Highly qualified people – from CPAs, CAs. CFAs, engineers, PhDs…..have to be kept intellectually occupied and financially happy. To do this we cannot have simple products like term insurance, SIP, Exchange traded funds, ETF, index funds. Simply because if the product is simple many smart brilliant people outside of this industry will not buy it! L O L.

The customer also needs esoteric products (which 99% of them do not understand in full) – and when they write to me they say ‘the agent sold me this plan’. It is NEVER ‘I did not pay attention to what shit I was signing’.

Be that as it may. Let us see how the industry complicates products. Take a hypothetical case of me telling a customer

– do a SIP and buy a Term insurance plan.

The client goes and buys a ULIP named ‘Safe Investment Plan’ or ‘Super Investment plan -children’ or ‘Superior Investing plan’…and for a minute you can be sure that all these are some kind of a unit linked plan. Obviously these are sub-optimal or blatantly badly priced product which the client can buy. High time Irda and Sebi stopped being indulgent. Look at the great Sebi not bothered about ‘MIP’ – Monthly Income Plan named to confuse people and get some money meant for the post office.

Come to the next ‘simple’ product called Term insurance. The immediate thought is to say ‘how can anybody complicate this?’ Well well when you pay a few million rupees to a few rank holding accountants or engineers, they can complicate mother’s milk!

So here it goes. There is a product called ‘Term insurance with a return of premium’. Let us say the term insurance premium for a person of age 30 is Rs. 9000 for a sum assured of Rs. 1 crore. It is easy to design a product called ‘Term Insurance with return of premium for a Rs. 14,912 per annum premium.

Obviously the client will say ‘but this is more expensive’. So the sales spiel is ‘Sir, in term insurance you LOSE all the money if you survive. However in ROP product, all the premium that you pay is returned to you’. It hits home most of the time. If this does not hit home there is another line – ‘Sir, in an ordinary term plan if you do not pay one premium it lapses, where as here it does not lapse, because there is some accumulation of yours.’ Another fantastic sales ploy and it works.

Is it a good product? No, nein, nyet, …not using the Indian languages or I could have added a few other NOs.

Why is this a bad product – simply because for getting the money back you are paying a higher price, and the money coming back is hardly an incentive to stay on. The reason for buying a term insurance is because you have a liability to pay or a goal to be fulfilled. What happens when the liability is over or the goal is reached?

What do you do if a competitor comes out with a new Term plan at much lower rates?

You throw away the term plan. Can you throw away the ‘Return of Premium Plan’ NO. NYET. NEIN…

The other cruel variation of the regular term plan is of course the ‘One- time term plan for 25 years’ kind of a product. This premium is much higher and is added to a housing loan and you pay it on a monthly basis (including the interest on it!).

So much for simple ‘SIP’ and a simple Term plan.

So you research more and say ‘Subramoney is very, very negative…he only criticises, let me buy a simple ETF’. Fair enough…read the link….and then come again to the blog….have fun…and have a great day!!


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  1. Subra
    you said “To do this we cannot have simple products like term insurance, SIP, Exchange traded funds, ETF, index funds.”
    Aren’t Exchange Traded Funds and ETF same?
    Or I proved myself to be a dud? ๐Ÿ™‚

  2. we should inculcate thinking about opportunity costs and time value of money as basic personal finance rather than FD and ETFs.
    but it is frustrating -like the time time i am spending trying to get my 3 yr old son to learn counting:-).it hit me that counting is far too abstract while learning symbols is easy..it is difficult to teach the abstract things

  3. actually it is not the ‘not knowing’ which is a problem. It is the pretence of understanding financial products that is a problem. First a person has to accept he /she has a problem – only then it can be solved. Right?

  4. best response is the first comment on the economist article-

    Rule One of Financial Regulation:

    Anything that can be abused will be abused.

  5. ETF is exchange traded funds, MOSt is a variant.

    Suresh, why financial regulation? any regulation this is true:

    Anything that can be abused will be abused. If it has not been abused the question to ask is have I seen long enough? Move 50 years behind and you will find some abuse somewhere….human nature?

  6. @subra : actually it is not the โ€˜not knowingโ€™ which is a problem. It is the pretence of understanding financial products that is a problem. First a person has to accept he /she has a problem โ€“ only then it can be solved. Right?

    very true. I read the linked article halfway and understood how much it can get complicated. ๐Ÿ™‚ Left the article halfway.

    I am novice in financial world. Jjust recently I came to know that secured NCD does not mean protection of even the principal, forget about interest. How much complex this finance world can become? But it is good to see debt products with varying degree of risk and varying degree of returns. It is just that I have to be knowledgeable to know degree of risk and degree of returns of a given product.

  7. Sanjay have you learnt that ‘Monthly Income Plan’ is just the name of a product SPECIFICALLY NAMED to help agents mislead clients! Agent says ..sir instead of putting in govt Monthly Income Scheme..put it in a MIP..clients fall in the trap ๐Ÿ™‚

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