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Be Careful with These Investments

IndianMoney.com Research Team | Posted On Friday, November 01,2019, 04:48 PM

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Be Careful with These Investments

 

 

Behind every financial product is a person selling it. Yes, this person has a family to feed. He doesn’t care if the product he sells matches your needs. This leads to mis-selling in the personal financial space.

What are the consequences of mis-selling? Well, you pay hard earned money to agents in commissions. You got a financial product which is of no value. Your money gets stuck for years.

Sales agents will do everything in their power to make sure you buy the financial product, irrespective of whether it matches your needs. It’s not the salesmen’s concern. It’s yours.

Understand the financial product before making the purchase. Pick only those financial products which match your needs and avoid falling prey to mis-selling.

Want to know more on Investment Planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

Be Careful with These Investments

You Buy Small-Cap Funds

Many people prefer buying small-cap funds. The main reason, they are cheap. But, these are extremely risky investments. Yes, these small-cap funds are known to give high returns.

When the economy is bad, these small-cap funds crash and you suffer heavy losses. Invest in small-cap funds only if you really understand them. Otherwise, you could be sitting on massive losses.

See Also: Why Women Need to do Financial Planning?

Invest in Sectoral Funds

Never invest in sectoral and thematic funds if you don’t understand them. This is taking bets in a single sector like infra, pharma, automobiles and IT. You could enjoy great returns if the sector you bet on performs well.

No one can predict which sector would do well and which one won’t. Just look at the automobile sector. It’s best to invest in equity-diversified mutual funds which invest across sectors. Diversification brings safety. Invest in equity-diversified mutual funds and avoid sectoral funds to bring safety in investments.

Look at the Portfolio Management Scheme

You need at least Rs 25 Lakhs to invest in a portfolio management scheme or PMS. This means if you have Rs 30 Lakhs, don’t rush to invest in a PMS. These are extremely risky and offer high return but at high risk. You could lose lakhs of rupees in the portfolio management scheme.

These schemes are suitable for the rich who allocate a small portion of their investments. A loss would not trouble them too much. You must stick to equity diversified mutual funds or multi-cap funds for your equity portfolio.

See Also: How to Replace Salary with Investment?

You Invest in Debt Funds

It’s wise to stick to liquid funds if you want to invest in debt funds. These have very short tenure and low interest rate risk. If you pick the right liquid funds there’s low credit risk. (This is the risk of a default).

If you pick debt funds of longer tenure, there could be trouble. Many debt funds have credit risk. (This is a chance of default). They may not be suitable for all investors. It’s best to stay safe when investing in debt. Why lose sleep by investing in debt instruments when there’s equity to do so?

You invest in High-return Corporate Fixed Deposits

Most people are not satisfied with the 6-7% interest a year from fixed deposits. They seek higher returns of 9-10% from Corporate Fixed Deposits. Now, Corporate Fixed Deposits are not as safe as fixed deposits.

You risk your hard earned money, just for an extra 2-3% returns. It’s wise to stick to fixed deposits if you don’t understand Corporate Fixed Deposits. Invest in AAA rated Corporate Fixed Deposits if you must.

See Also: Best Investment Plans for 2019

You Pick ULIPs

Many people invest in ULIPs (Unit Linked Investment Plans) which is investment and insurance. ULIPs invest in equities to give you better returns.

But are ULIPs really great? The purpose of availing life insurance is risk protection. This is protecting your family when you are not around.

ULIPs offer low mortality cover. (The life cover is insufficient to protect your family). They have several charges which eat up returns. It would be wise to avail a term life insurance plan and invest in instruments based on risk profile.

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