Will you buy medicines without consulting a doctor?
Yes, I used to go for self medication when there is something like a headache. Yesterday I was feeling fever and I took Crocin thrice a day and I am alright now. Such small issues can be managed through self medication. But anything more than that requires the opinion of an expert doctor who will first diagnose the health problem before giving prescriptions. Nobody will go to the chemist and buy medicines as per his advice.
Come to personal finance – It is full of self medication. The moment you are getting into your first job, your uncle will request you to join for an LIC policy to save taxes. You cannot say `No’ to him and you sign the proposal form for life insurance. You have agreed to pay 12,000 per year as the premium in such a policy for 20 years.
With the current bonus rates of LIC (if that continues for the next 20 years), you will get around 4 lakhs after 20 years. But if you are investing 1000 per month in a good mutual fund, you will get around 9 lakhs in 20 years, assuming a 12% return. Many good mutual funds have given more than 20% return in the last 20 years! Now, you can imagine the loss in this deal because of your uncle. You end up getting around 5% returns after 20 years and lost around 5 Lakhs in this deal.
Now, you are married and is having a kid. The same uncle will appear with a child policy. The policy will give fixed payouts when the child is ready for college education. If there is a death of the father, no need to pay any future premium. The emotional appeal in this case is more and you will buy a Jeevan ‘Bacha` policy for your son. Let us assume that the annual premium is 36,000.
You will get around 10 lakhs in 3- 4 installments from the age 18 of your son. The return is around 5%. Had you invested the same amount by way of 3000 per month in good mutual funds, you will get around 21 lakhs assuming 12% returns. Your son lost 11 lakhs due to your uncle!
Next, is a pension policy, which is very much liked by most people. Being a self employed professional you are not eligible for any pension. Uncle will explain you the need for retirement planning and how the `Jeevan Pension` policy will help you. You start dreaming of the long retired life and agreed to pay 48,000 per year for a pension policy for 30 years.
You are aged 60 now. Your pension policy will have a value of around 33 lakhs. You will start getting a pension of around 25000 per month till you live. This 25,000 after 30 years will be equivalent to 4353 of today if we assume an inflation of 6%.
Suppose, you had invested this 48,000 by way of monthly SIP of 4000 for the 30 years, you will be having around 1.2 Crore at age 60. You can withdraw around 55,000 per month for the next 20 years from this amount. Your uncle may not be there to see this. See the huge loss you are making in such a policy. You are getting just 50% from the pension policy.
Why listen to the agent? Take control of your financial life.
How, you can avoid such wrong financial decisions? Stop going to the Chemist. Go to the doctor. A doctor in personal finance should be an independent financial planner who should understand your financial position and then help you in identifying the best suited investment avenues for you. He should not be an agent of any company. If he is an agent of any product, he will only sell his company products which may not be suitable for you. The financial planner of this type is called fee only financial planner, who will charge a fee from you. He will not get any other income like commission because he is not selling any products.
How to find out such a planner in your area?
Securities and Exchange Board of India (SEBI) introduced Investment Advisor’s Regulations in 2013 and it has licensed many Investment Advisors all over India. Such advisors can be your best option for your personal financial consultation. Such advisors will protect your interest like your family doctor.
Buy online and save more.
You can buy almost all financial products online. There is no need to go for any agents or brokers. Buying online will save more money because online policies are cheaper. In mutual funds direct plans can offer you better returns which can be purchased online. Even PPF is in online mode now. It will be better to get the support of a fee only financial planner registered with SEBI and buy the financial products online as per his recommendations.
Better say NO to your uncle for your better financial life.
Melvin Joseph
SEBI registered Investment Adviser
SEBI registration number -INA 000000342
Finvin Financial Planners
10. Ground Floor, Olive Excel CHS Ltd
Plot No- 16, Sector 42, Nerul, Navi Mumbai – 400 706
Mobile: 91 9820843739
Website : http://www.finvin.in
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