Can You Trust Your Bank Anymore?

Can You Trust Your Bank Anymore?

I know what you may be thinking after reading the title of the article. First thing that might have come to your mind is recent Citibank fraud or should I say a fraud masterminded by one of Citi bank’s staff to be precise. Well, that is really sad event for sure and reminds us the dangers of having blind trust again as far as our money is concerned. But this article is not about Citi bank event. This article is, in fact, speaks about another bigger issue or should I say fraud which happens frequently with the innocent and gullible bank customers but we hardly get to hear about it in the media. This article is about the mis-selling of commission based products like insurance which is done by the bank staff or “Relationship Managers’ so to speak.

Banking system is an integral part of any economy. And so is banking of our lives. We cannot think of our financial life without banks. In fact, banking is the most basic and primary need as far as our money is concerned. You keep your hard earned money in your bank savings account. As a matter of fact most employees get their salaries transferred directly to their savings or salary accounts these days. The trust for banks comes out naturally as we know these are highly regulated institutions and government banks even give us the peace of mind as they have the backing of the government. 

Being a part of our life, banks saw this as an opportunity to increase their profits and have started selling not only their own products but also of the third party like insurance and mutual funds on commission basis. And if you have even little bit of idea of sales, you may know how the sales targets are set and then poor sales people have to achieve it. Let me share with you a true story of my uncle’s in Delhi. He went to bank to make fixed deposit or FD three years back. And he ended up with an ULIP policy at the age of 50+ sold by one of bank staff. The reason given was that it was a better product that a boring FD. (I, myself, am not a huge fan of FDs though conditions apply). And if you are little bit updated, or yourself a victim of this product, you will have a real good idea of how horrible this product was. It was sold by all the people involved whether banks, brokers or individual insurance agents aggressively as they were making handsome commissions. And you, the customer lost hell lot of your money. Clearly the motive was and is to make a killing out of you, to earn big fat commissions not your wellbeing. Coming back to my uncle, he paid roughly Rs. 81000 and today if he surrenders that policy, he is able to get roughly around Rs. 38000. And that’s what happens when you go for investments blindly trusting either your so called “Relationship Manager/RM” at your trusted bank or insurance agent without understanding its implications, risks involved or putting any effort to understand in the first place. I know for fact that most of you reading this article have most of your investments, if any, either in insurance policies or PPF or NSCs or FDs. How Do I know that? Because I know the reason the most of the average salaried class people do the investments. For tax saving and safety trying to avoid risk. (And as far as risk is concerned, there is no investment with zero risk. I will discuss on this topic in another article). That’s about it. If there were no tax incentive today for these instruments, I bet almost everybody will stop buying insurance or stop investing in PPF and NSCs and so on. Because we don’t buy insurance for protection. We are sold (wrong) insurance product for tax saving. Read the last line again carefully. We don’t buy insurance but are sold or should I say mis-sold. Sad. But true.

Sometime back an interview of the head of Insurance Regulatory Authority of India (IRDA) was published in a magazine. He said the insurance industry made a mistake of selling insurance as an investment product. The immediate thought that came to my mind after reading this was who allowed them to do so all this in the first place.

The other day I received a call from one of my clients enquiring how much commission an agent gets normally for a money back policy. He didn’t ask me whether this policy was good for him or not. Whether he needed it or not in the first place. As I could make it out from the call, the reason he was curious to know about the commission part was so that he could negotiate with his agent some kickback (his share) out of that commission. No wonder, we deserve to be cheated, I mean mis-sold. If that is the attitude people have towards their hard earned money when it comes to taking care of it, what kind of financial future one can expect. So you the customer is also responsible to some extent. You allow yourself to be cheated by not asking the right questions or thinking whether you are doing the right thing before signing the cheque.

Anyway coming back to banks I have many similar stories where people were sold ULIP through banks and they got their fingers burnt badly, really badly. So the next time you visit you bank and you are approached by the smiling ‘RM’, give it a thought, “Can You Ever Trust Your Bank Anymore The Way You Did?”

                         Be Smart & Intelligent With Your Money.

                              Your Life! Your Money! Your Way!

Source: YourMoneyYourWay.in

5 Things To Keep in Mind Before You Invest Your Hard Earned Money

What care should YOU take while investing?

Understand the investment product

Whichever investment product you go for whether stocks, Mutual funds. FDs, real estate, make sure that you understand its intricacies and the risks involved. For example FDs which are normally considered safe, have the risk of giving lower return than the inflation rate which will imply that you end up having negative return. Let’s say your FD gives you a return of 8% per annum whereas the inflation is 10%. That means your FD gives you -2% returns. Similarly you should also consider you time horizon while investing. If you have shorter time horizon less than 3 years, you should invest in debt oriented products. On the other hand if your time horizon is longer you should consider investing in equities through mutual fund route. Investing directly in equities is best left to the experts and professional. Other important point to consider while investing is you should consider your risk profile and risk tolerance. Will you be ok if the markets go down tomorrow or will you lose your sleep over it? If you consider all such factors you improve your chances of winning in the game of investing.

Understand the costs and benefits

You must know the costs and benefits of your investment. Most of the investments have certain charges involved. For example, mutual funds charge management fee to manage the fund. Similarly if when you buy or sell stocks, you pay the brokerage, STT, stamp duty etc. All these charges affect you rate of return. Other thing to keep in mind is the opportunity cost. Opportunity cost in general terms is defined as the cost of an alternative that must be foregone in order to pursue a certain action. Similarly opportunity cost in investment term may be defined as the difference in return between a chosen investment and one that is necessarily passed on. Let’s say you invest in a bank FD and earn rate of return of 8% whereas similar investment in mutual fund yields 10% return. So in this case the opportunity cost is 2%.

Know the liquidity and safety aspects of the investment

Liquidity means cash or cash equivalent. It means how easily you will be able to liquidate your investments at the right valuation if any such need arises. For example real estate investments are quite illiquid asset class as you may not be able to sell it quickly or get the right valuation as well. Similarly, equities are very easy to liquidate but you may not get the right price in bad markets. This is a very important point to keep in mind while going for investment. Similarly you should know the risk factors associated with your investments. Risk factors include liquidity risk, market risk, business risk, political risk etc.

Diversify your investments

There is very famous saying that you should not put your all eggs in one basket. And nothing can be truer than this as far as investing is concerned. In fact diversification of your investments can be one single most important critical factor that will determine your success or failure as an investor. Most people either go for too risky investments or too conservative investments resulting either losing the money or earning far less returns than what they could have achieve with right kind of mix of investments. You should have the right mix of equity and debt investments in your portfolio to get the optimum returns out of your investments.

Do goal based investments

You must have a clear purpose before putting your money into any investment e.g. whether your purpose is capital protection, regular income or higher returns from your investment. Similarly your investments should be able to meet your future needs, goals and aspirations. For this purpose, you should do proper financial planning. Financial planning not only takes care of your day-to-day needs but also offers you the security against uncertainties and emergencies and helps you to meet your future financial needs. These days there are professional financial planners offering their services at a very reasonable fee. A professional help can make a huge difference in the quality of your financial health and the results you get from your investments.

Be Smart & Intelligent With Your Money.

Your Life! Your Money! Your Way!

Source: YourMoneyYourWay.in

Why Do People Lose Money?

Lack of fundamental knowledge

People generally invest their money without understanding the investment product and the risks associated with it. For example, people mostly invest in stocks to make quick money when they have little or no idea about what a stock is. They do not understand or know the company when they invest in its stock. They fail to understand that the valuations of a stock of a company depends upon factors like the quality of its management, its business model, its present earnings, the future growth prospects etc.

Investing on ‘hot tips’ by friends/neighbour/colleague

People often invest their money on ‘hot tips’ given by their friends, neighbours or colleagues rather than based on any strong research. It mostly happens when the markets are rising and everybody seems to be an expert. People follow the tips blindly without realizing that when the tide will turn, it can cost them very dear. And they find them sitting on the losses and dud investments. Internet is the other medium where there is lot of information is available freely and people rely on it without checking its authenticity, legitimacy and the reliability.

Mis-selling by institutions as well as individuals

Mis-selling of financial products by financial institutions like banks selling third party products on commission basis as well as individuals is quite rampant. In fact it has become a matter of grave concern as big scams keep unfolding now and then and the innocent people are taken for a ride. People are often sold wrong products and they are not told about the hidden charges or the risk associated with the products or often given the wrong information about the financial products.

Investing on impulse without having proper plan in place

One important factor responsible for the losses is that people often invest on impulse in haphazard manner without having any plan in place. For example traders lose money because they do not keep the stop-losses or targets for their trades. Similarly people do not have defined time horizons for their investments. For example people invest in equities or mutual funds and expect immediate returns. And if the markets go down, people either sell their good investments at loss or keep sitting with bad investments with mounting losses.

Be Smart & Intelligent With Your Money.

Your Life! Your Money! Your Way!

Source: YourMoneyYourWay.in

How to reduce your car insurance premium

 

You can plan to reduce the insurance premiums paid on your vehicles. According to the Motor Vehicle Act, a vehicle cannot be driven on the road unless and until it is insured. The insurance is renewable each year. Vehicle insurance is a pre-requisite to vehicle ownership.

If a vehicle's insurance policy is not renewed, driving that vehicle is illegal. Also, if the vehicle has an accident, the insurance company will not pay out any claims.

All no claims bonuses will also be forfeited. You can renew your auto insurance with another insurer, including the bonus accrued at your earlier insurer.

The risks covered by a third party policy include death or injury to a third party and damage to third party property. Liability in the case of death or injury is unlimited.

A comprehensive motor insurance policy provides cover against damage caused to your vehicle due to man-made or natural calamities too.

A motor insurance policy covers your vehicle against:

Natural calamities

Man-made calamities

Personal accident

Third party legal liability

Any permanent injury /death of a person

Any damage caused to property previously, the premium was mainly based on geographical zone, engine capacity, price and age of the vehicle. Now, a number of other factors are also considered to arrive at the premium. One can avail a discount on the premium and reduce it by up to 25-30 percent.

Discount on premium

The most important discount is the no claim bonus. In case you haven't made a claim against your vehicle insurance in a given year, you get the benefit of no claims bonus in the form of a specific percentage reduction in your premium in the subsequent year.

No claim bonus increases with each claim-free year. It may go as high as 50 percent on the 'own damage premium' component of the vehicle insurance premium.

Voluntary deductible discount

In addition, the insurance companies also offer a discount on your vehicle premium if you bear a certain amount of loss associated with each claim.

Voluntary deductible is the amount that you agree to pay yourself towards a claim before the insurance company pays up the balance. The higher the voluntary deductible that you agree for, the lower your premium will be.

The discounts associated with this feature range between 20 and 35 percent of the premium, subject to a maximum of Rs 3,500.

However, you need to review the amount of voluntary deductible against thediscount to ensure the discount amount will actually be higher than the voluntary deductible.

Premium depends on make, model

Premiums depend on the make and model of the vehicle. Each model has its own claim record and the insurer prices the vehicle based on its claim experience.

Some models may be more claim prone because of their structure or usage, and the premium will factor in all these facets. Some models have high repair costs and the premium is affected by this.

Source: Economic Times