It is common to see people with some reasonable income to be chased by Relationship Managers to buy some product or the other. Most of them have no clue to understand what is being pushed at them….so they say YES!!

Here is a checklist of important questions that you should ask before you invest:

  1. Do I need that product: Most of us do not need the 7th mutual fund scheme or the Unit linked policy, the pension plan, the new micro cap fund which invests in Tanzania and Taiwan – we just do not need that product. So if you do not need that product, why break your head over it? Just ignore.
  2. Do I understand the product: Every¬†product should be easy to break up into expected returns (depending on the underlying assets), managing fees. If the person who comes to sell the product is not able to explain it in such a simple language, be wary. For example mutual funds are today governed strictly by SEBI. So it makes sense to come out with ‘Capro’, ‘PMS’ etc. which can charge you a higher fee than a regular product. The more complicated a product, the more expensive it is.
  3. How much does it cost: Can I decipher the product and find out the cost? An index fund costs about 1% in total costs – every product should revolve around this number. The higher the number, the greater the risk. Look for listing all costs – one time, regular, and ‘ending’ costs. If it is complicated, ask question 1 and 2 again.
  4. Does it fit into my over all plan: In my overall plan all I needed was a sb account, term insurance, index and other funds, – does this product fit in? Do I have to buy this to force myself to please somebody or some such nonsense? If it does not fit into your plan – increasing the list of products that you have is not appreciated.
  5. Is this really a long term product: a 3 month put or call option is not a product that an investor needs. So if it is a short term product and you are not too keen to look at it, smart you. Now move on. You are not a trader so you do not need a capital protection product which will protect your capital over 4 years. You are a long term investor who understands volatility, standard deviation, and equity returns. Also if it matches your requirement profile – say your son’s higher education is 15 years away, clearly you can take an equity bet instead of going for these kinda expensive ‘guaranteed’ products.
  6. What is the track record: of the supposed fund manager, the fund house that is bringing it to you and the person who is bringing it to you. All of that matters. I have no respect for some corrupt fund managers – and I refuse to look at products from those fund houses. Never mind that the fund manager has left – I am still worried about the quality of the fund managers. It scares me. So look at all these and if you are even a little uncomfortable, just say NO.
  7. What is the possible downside: If i wish to come out of this transaction whenever I wish, what is the haircut that I have to take? is it 100%, 90% or 10%? What is the tax implication of entry and exit? Look at NPS for e.g. I hate the fact that it is a long term investment with tax at withdrawal -AND NO INDEXATION Рit is a criminal product terribly structured. I do not have an NPS account just for this amazingly stupid structure.
  8. What is the Lock-In: a lock in does not bother me at all. However when I am investing I need to know that I cannot exit it for the next 3, 5 or 15 years, that is all.
  9. Ease of getting out: Ever tried surrendering a life insurance endowment plan? one company with whom I used to deal with earlier has made it almost impossible to take one’s money out. So one question to ask the ‘operations’ staff (not the sales guys) what is the process of surrendering the product. The sales guy is prone to faking it. Be careful.
  10. Am I buying this to please my boss, doctor, wife, neighbor, veterinarian, dentist, dog walker, daughter’s classmate’s father,…etc. If yes, junk it.

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  1. It was a nightmare for me when I surrendered my Jeevan Anand policy from LIC. They made me roam around for 3-4 months. Tried to brainwash my father and all other nonsense..

  2. Liked your comment on NPS. Most nonsense long term pension product, terribly structured and criminal tax incidence and leaves pensioner always a poor person through out his/her life because of tax implications and that too when you need money most (i.e. into your retirement years).
    Why this Government does not understand simple things about retirement, pension and tax structure in India.

  3. If you opt for annuity option in NPS, you need not pay any tax. If you withdraw it lump sum, then you need to pay tax on a part of the corpus.
    The tax is for discouraging people to withdraw lump sum as most of them will not have any knowledge of management of large corpus of money.

  4. You will be required to pay tax under both the conditions. Whether you withdraw lumpsum or opt for a pension.
    On lumpsum withdrawal of 60% amount either you pay marginal tax on entire withdrawal or pay tax as per your slab when you receive pension also because pension is also and fully taxable. The only difference under both the option is that in case of lump sum withdrawal you have to entire tax in one go whereas in pension plan, you have to pay on your yearly pension amount – of course depends you fall under which tax slab. But NPS withdrawal beyond 40% is fully taxable whether in one go or in yearly pension withdrawals/installments.

  5. @swapnil: this is again the state patronizing us. if having knowledge of management of large corpus still allows LIC to give ridiculously low returns, then investor is better off without it. what if the investor is willing to give an exam to prove that he is capable of managing money on his own – would that be acceptable to exempt him from annuity?

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