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Canara Robeco’s Ravi Gopalakrishnan speaks it out

   Mr. Ravi Gopalakrishnan serves as the Head of Equities and Fund Manager at Canara Robeco Asset Management Company Ltd.

  1. The market seems to be in a frenzy clocking record highs. What do you think is the ideal approach for a new retail investor to participate?

While the Indian Equity markets have reached new highs, the current investment environment has easily sent even the most experienced investors into a frenzy over what sorts of investments to be looked at; let alone the new investors. Understandably, investors don’t want to lose out on the upside of the recent market upswing, but there are ways in which novice investors can try to make the most of their investments. It’s important to remain focused on one’s long-term financial goals in the midst of short-term stock market activity. While it’s tempting to react to current market conditions, first time investors may consider gradually increasing allocation to equities and can adopt a staggered approach of investing via SIP. SIP as a facility not only helps to avoid an exposure to market volatility at once, but also benefits from the power of Rupee Cost Averaging when the markets see a downturn. Having said this, Equity is a long term investment whose inherent potential is realized only by compounding i.e. buy-and-hold strategy. One should never try to time the markets, instead, one should keep investing systematically, as and when there is an investable surplus and an investment opportunity.

  1. What’s your outlook on the equity market for FY’18?

The bellwether indices are now consolidated in quality companies and the valuation of these companies are reasonably fair. Long term growth outlook is intact though near term scenario could be hazy due to specific unforeseen events. However, on the back of strengthening macro-economic situation and the political as well as regulatory stability in the country, the Indian equity markets are in a structurally constructive phase. The strong macroeconomic condition with the economy geared to shift from informal to formal could provide confidence to the investors and improve the market sentiments.  With the improving domestic environment, going forward the equity markets are likely to gather momentum on a longer term owing to inherent structural strengths of the economy with the bottoming of corporate profitability and prospects of domestic flows.

  1. What themes would you like to play in the current market scenario?

Global growth, at this stage, looks to be at an inflection point and India will remain no different, albeit is expected to continue to grow faster than most other economies. With a stable government at the center and the implementations of various structural reforms, sectors with structural growth drivers (especially domestic economy linked) having low cyclical and commodity related exposure are expected to do well in the near future. Companies in select high conviction sectors like private financials, consumer discretionary, auto, cement & building materials and industrials could be the few sectors which are seen gaining momentum and are expected to grow multifold going forward.

  1. According to you which are the key events an investor should watch out for and how do you think the domestic equities market will react to these events?

In the recent times, there has been a lot of uncertainty around the legislation in the US. The clarity over the impending key decision by the US could impact the global markets in near term and could be one of the major events to look forward to. The geo-political tension arising due to the US intervention in Syria as well as the North Korea and instability in the Eurozone could be global factors to look out for. Movement of commodity prices like of Crude Oil and the pace of rate hikes in the US resulting into a volatility in the domestic currency market could also result in bouts of intermittent equity market volatility. However, the strong macro-economic factors and positive domestic events could guide the direction of the Indian Equity Markets upwards in the times to come. Implementation of GST is seen to be a big positive for the country causing the formalisation of informal sectors of trade in the country. Expectations of an above average monsoon, contained inflation and a steady growth rate could drive the Indian equity markets in the coming future to new highs.

 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

We hope you don’t WannaCry

12th May, 2017 – It was a regular Friday with most of the world dragging themselves towards the weekend. Everything was normal till one-by-one, just like a chickenpox outbreak in a neighborhood, data stored on over 2 lakh computers were encrypted and locked users out of their own data. This happened not only the home PC levels but also across various banking and financial institutions all around the world. WannaCry Ransomware is the new villain in town with a demeanor vicious enough to send the world authorities into panic.

So, What is the WannaCry Ransomware all about?

Imagine one fine day someone like this happens –
All your doors, windows, refrigerator, oven, everything is locked with an alien-like complex lock which nobody in the world except the maker knows to unlock. Further, you find a sticky note asking you to put a ransom amount in a letterbox with nothing written on the envelope and promises to tell you the code to unlock the locks once the ransom is received. However, if you don’t pay in 3 days – the ransom doubles and after seven days everything locked will be destroyed.

This may seem like a fancy sci-fi plot, but this is exactly what the WannaCry ransomware has done to data saved on over 2 lakh computers across 150 countries.

The WannaCry ransomware enters your computer (just like a virus, only more complex and powerful) and encrypts (read: locks) all files and will decrypt (read: unlock) it only when it receives the ransom- US$300 in bitcoins. Why bitcoins? Because it preserves anonymity. Click here to read more about bitcoins. A 3-day delay in payment doubles the ransom and a week’s delay will trigger a permanent deletion of all your files.

How does it spread?

Ransomware is a programme that gets into your computer, either by clicking or downloading malicious files. It then holds your data as hostage.
However, some security analysts say the infections in the case of WannaCry seem to be deployed via a worm, spreading by itself within a network without being clicked on.
The programme encrypts your files and demands payment in order to regain access. Security experts warn there is no guarantee that access will be granted after payment.

Some forms of ransomware execute programmes that can lock your computer entirely, only showing a message to make payment to log in again.

Others create pop-ups that are difficult or impossible to close, rendering the machine difficult or impossible to use.

Global impact

Russia, Ukraine and Taiwan are reported as the top target destinations for the ransomware deployment. However, reports suggest fragmented cases across 150 countries have been recorded.

While India has been lucky enough to have only a few isolated WannaCry cases recorded, it has been a good wake-up call to the officials to take deeper interest and action to secure India’s digital databases and portals which include the banking system and Aadhar as lucrative targets.

What can you do to avoid being the victim?

  1. If you use windows XP, 8 or 10 or server 2003, it is highly recommended for you to download the security patch recently released by Microsoft.
  2. Install and use an updated antivirus like Microsoft Security Essentials.
  3. Disable pop-ups via pop-up blocker in your browser.
  4. Avoid clicking unfamiliar links and attachments.
  5. Most importantly, as you can never be too safe, regularly backup your crucial data.

“Our daughter’s dreams will never be too expensive for us”

“Mom, I want to be a doctor. Can I become one?” asked six-year old Anjali as she ran up to her mom – Simran. “Of course, why not? If you study well you can become the best doctor in the world”. “You are the best”, Anjali said as she hugged her mom tight. However, what was more overwhelming than that tight hug, was the tightness Simran felt inside. Simran knew that her daughter was very bright and could definitely be the best doctor, but so could she.

Simran remembered the time when she completed her secondary education. Simran used to be an exceptionally bright student and coincidentally, like her daughter, even she wanted to become a doctor. On the last day of school she went up to her parents and shared her dream and she can never forget the response she received. With tears in his eyes, her father told – “Simran, we are very proud of you and believe in your abilities but we can’t afford the high education expenses. Your dream is too expensive for us”.
“Your dream is too expensive for us.”


The doorbell buzzed and broke her reverie. Her eyes were now red and forehead in a frown. Raj stepped in and instantly knew that something serious is bothering her. Raj asked her about her grim expression; she wasn’t her usual self. Suddenly, tears started rolling down her warm cheeks and she managed to stutter in a mixed state of pain and anger – “Never, I mean never, will our daughter’s dreams be too expensive for us!” Raj knew about Simran’s life like a book and almost immediately understood what happened. “She will dream big and we will give her dreams the wings it needs”, Raj told her reassuringly.

Here’s how Raj and Simran worked as a team to bring their daughter’s dream closer to her.

  1. Understanding the dream

Raj and Simran spent time speaking to their friends and family trying to understand what does it take for a person to achieve a dream similar to becoming a doctor. They were more aware of their surroundings now. Every now and then Simran would engage in small talk with medical students she met in the bus and tries to understand the challenges and the opportunities they face. Raj and Simran realise that they can’t help little Anjali achieve her dreams till they understand her dreams.

  1. Making big money last longer

While every parent dreams of a bright future for their children, it is equally important for them to lay the foundation well enough. Raj had just received his bonus. The bonus was always used either to make a down payment for a new vehicle or a gadget, but not this time. This time he decided to invest it in a good mutual fund and not touch it till Anjali turns 16. Little did he know that this small bonus would grow over 6 times by the end of 10 years.

  1. Every experience teaches

One day while packing the tiffin for Anjali, Simran noticed that she would always pack two tiffins – one with bourbon biscuits or grapes which Anjali would eat through the day in small parts and second would be proper lunch for the long lunch break. “This is exactly what we should do with money!” Simran thought to herself. She started saving money for two different goals – one for the periodic expenses which  she would save in an instant redemption debt fund and second was an SIP into equity mutual funds for building a corpus sufficient to meet all long term expenses.

  1. Let the kid know you’re there

Raj and Simran would continuously motivate her and help her understand concepts. As she grew older, Anjali wanted to participate in research and experiment exhibitions. While participation in such exhibitions required a high level of caliber and intellect, it also needed some financial backing for all the equipment and apparatus needed. Well, that was no longer a worry as Simran and Raj had already started setting money aside for these steps to their daughter’s success.

With Simran and Raj’s smart financial planning, Anjali was able to pick opportunities and excel at them. While the financial requirement would seem too huge as an absolute, it really required nothing more than disciplined and smart investing of affordable amounts.

The Twist

As Anjali grew up from a six year-old to a 23 year old MBBS, she cleared the exams and was offered to complete her MS from the world’s most prestigious university located in the USA. But now, there was only one problem – the admission would cost Rs. 75 lakhs. Here’s the twist – Remember Simran’s tiffin box strategy? Yes, the one where money was split for long-term and short term needs. The ten thousand rupees she invested every month had now grown to Rs. 2.6 crores. (This is actually possible and similar has happened)

As they dropped Anjali to the airport, Raj looked into Simran’s eyes and said – “Our daughter’s dreams will never be too expensive for us.”

Is it wise to subscribe to all the IPOs being launched?

With multiple Initial Public Offerings (IPOs) being launched continuously, there is quite a buzz in the financial markets. This is because of the fruitful listing of companies in the recent months. With the rail budget being merged, state-run railway companies like IRCTC, IRFC and IRCON will also be listed on the exchanges. With such an increase in IPO launches, is it wise to subscribe to them all? Let us take a deeper dive into this issue.

  1. Indulge in factual research

It is quite a task to gather valid research on companies that are going to go public. It is easier to find information on publicly traded companies when compared to private companies. Analysts dissect public companies well enough, but the private players only disclose the information that they are okay with being in the public domain. Even the information in the prospectus is created by the private company and not by a third party behaving in an unbiased capacity.

Yet, there are ways to ensure you can do a decent background check. Use the internet to your advantage and find out relevant information about the company set to take out their IPO, their competitors, company health, press releases etc. There is a possibility that you will not find much but whatever little information you can glean, will be beneficial. The data at your disposal will aid you in deciding if it is wise to invest in an IPO, or if the value of the company is being blown out of proportion.

  1. Look out for capable brokers

An important point to focus is the brokers that are bringing the company public. Underwriting companies is an important job, and smaller brokers are notorious for underwriting any company that approaches them. Hence try to look for a broker with a strong reputation and a record of bringing in successful IPOs.

Yet, there may be times when it is wise to follow a small brokering firm. Smaller brokers have a limited client base, hence it is not quite cumbersome for investors to buy the pre-IPO offerings. Larger brokers do not like an individual investor’s initial investment to be in an IPO. Old and rich independent investors are allowed to invest in IPOs in larger firms.

  1. Read the prospectus like a holy book

Even though you should be wary of what is written in the prospectus, it is still wise to read it thoroughly. It contains data on the risks, opportunities and the anticipated use of the money being raised. Look out for red flags such as raised money being used to pay-back loans or even the purchase of equity from the founding members. It is never inspiring if a company cannot pay-back loans if they do not issue new stocks.

Alternatively, if the company seeks to use the raised money for research and development or even expansion into other markets, then this is a deal you could get behind. Look for a realistic picture and not just optimistic estimates in the prospectus. Pay particular attention to the accounting information to decide if this IPO is worth your investment and risk.

  1. Exercise caution

Cynicism is always advisable when considering an IPO investment. With the lack of information around IPOs, it is best to tread lightly. Even if the IPO is being recommended by your own broker, it is exceedingly important to be cautious in your approach. Most times, individual investors are offered the rejected stocks that the moneyed and rich investors have declined to invest in. Always try to ascertain why your broker is trying to get you to invest in a particular IPO. Brokers have a habit of saving the best of shares for their moneyed clients, so unless you fall in that category, you might be offered a dud.

  1. Let the lock-up period end

Wait till the insiders are ready to sell their shares. You cannot ascertain in the lock-up period if the investors are satisfied with the spot price. The good companies continue to do well once the lock-up period expires, hence it is always a good idea to wait it out and let the market settle.

 

Truth is that subscribing to IPOs can go either way, for retail investors it is a game of chance, especially when choosing these IPOs with limited knowledge. While choosing IPOs, quality of the prospective company is of the utmost importance.

When Simran decided she’s going to be the best Mom!

(To-be mother? Even Simran was. Here’s her story about her journey from a to-be mom to a super-mom)

It was a beautiful evening when Mumbai-based engineer Raj was standing in the balcony waiting for Simran – his beautiful wife, the person he admired the most. It was 7:30 pm now, Raj started growing impatient as Simran usually reached home by 6 pm. *click* *click* Just as Raj decided to call her, Simran opens the door. Raj was furious – she did not even care to inform him that she would be running late. This had never happened before. Angry as ever, Raj asked – “What do you have to say for yourself?”.  Walking up close to him, she uttered the words which instantly brought a smile across Raj’s face along with tears rolling down his cheek. “Shh… the baby’s sleeping”, she said as she placed her hand on her abdomen. This was a moment to rejoice. Just a few minutes back, Simran’s doctor informed her about her 2-week old pregnancy.

As days passed, the baby was growing faster and Simran felt more connected than ever. It was a tough choice, but she just couldn’t bear the thought of not being with the baby through her early life. Simran decided to take a sabbatical from her job.  Simran, being the smart woman she always was, realized that there is no escaping to the physical and emotional stress but at least she could take charge of the financial stress. Raj and Simran earned a decent income combined but it was not sufficient for the new entrant. The heat of staying financially afloat was building upon Raj as he started working harder. Here’s how Simran helped Raj and herself cope with the financial stress.

  1. Set a budget

Simran knew the healthcare costs were soaring. She decided to create a budget and divide it into three sections: pre-delivery, delivery and post-delivery. She estimated the amount of money she would need at each stage and started setting the equivalent amounts aside. While she could have saved in cash or in her savings account (an earn 4% returns), she was too smart to do this; instead, she chooses to invest into an ultrashort debt mutual fund which is quite similar to her savings account, but would yield ~8%. She knew it was a smart way to make her money work for her.

  1. Pay off expensive debts

Raj was delaying the payments of his credit card as he wanted cash to be able to buy the new iPhone. However, Simran being the wiser one chose to pay off the debts and save on the huge interest costs that were mounting. This let her set more money aside for childcare. By choosing not to stuff cash in her drawer, she saw her money growing everyday on the investment app.

  1. Cutting down on frivolous expenses

Raj and Simran knew that to make space for the baby’s budget, they need to cut down on a few not-so-important expenses. Suddenly, the yet-to-be-born baby’s smile became more important than Raj’s much coveted shoe collection and Simran’s flair for designer accessories. For every unpurchased Zara dress and every Adidas left at the store, they added to the baby’s budget. This was not a sacrifice, this was an investment into the baby’s happiness – their happiness.

  1. Find an alternate source of income

Since the household needed money and Simran was a skilled professional, she decided to be a freelance writer. This did not help her just financially but also mentally. She enjoyed her work thoroughly (she always had a passion for writing) and also earned enough to keep her financially afloat. No amount is enough, especially when your child’s smile is going to depend on it.

  1. Create goals and plans

Raj always wanted his first child to be a doctor. Unfortunately, this dream needs more than just passion, it requires a lot of money. Also, Raj and Simran had decided to give their child all the happiness they could and this included everything from yearly vacations to a grand wedding. Raj was foresighted enough to see the need for starting an SIP into mutual funds which would need nothing more than a small amount invested in a disciplined manner. He knew that the power of compounding would take care of the rest. They create goals – Simran called them life milestones and started investing regularly for the longer term.

Nine months ahead, they witnessed the birth of a beautiful child with eyes like Simran and a nose like Raj; they decided to name her Anjali. At a celebration, Raj raised a toast to Simran and said “If it weren’t for your wisdom, at this time, I would be scurrying for help to pay the hospital bills”.

It’s been 27 years since then, Anjali is now a doctor, happily married to another doctor. Today, Anjali gets to know that she’s pregnant. No prizes for guessing what happens next.

SIP- best mutual fund investment app-fisdom

Financial essentials for freelancers

So you’ve been dabbing into freelancing which comes with a feeling of being your own boss and a sense of freedom. But hey, wait a moment, there is a flipside too. A freelancer doesn’t have the luxury of a steady cash flow, like a monthly salary for an employed person. This makes managing finances all the more necessary for a freelancer as he is always in an unpredictable zone, financially. Fret not, we’ve got you covered. Here’s how –

  1. Maintain separate accounts for finances
    Having a separate account for business and personal transactions always helps and helps you keep a check on where your cash flow is heading. Think of maintaining business account for all the official transactions and decide upon a fixed amount which you transfer to personal account as an income to yourself.
  2. Keep a tab
    Cultivate the habit of recording your transactions related to inflow and outflow of finances. Recording all the expenses like invoicing, office expenses etc. will help you keep a track. You will also realize you can manage your finances much efficiently with all the details. These details will also come handy while filing the tax returns.
  3. Have an emergency fund
    This is for the liabilities which may arise due any type of expense ranging from personal needs to financial downslides. The situation may turn all the more scary if you deplete funds for other purposes. Thus, set aside a fixed amount from the savings into the emergency fund to keep yourself covered against contingent liabilities.
  4. Start tax-planning early
    Knowing how much you need to pay in terms of taxes will help you in managing your income. This way you’ll set aside a fixed amount for tax purposes and will not result in depleting your savings. It is advisable to look up for tax-planning websites(many available on the web) or seek services of an accountant.
  5. Have a corpus for planned needs
    Set aside a fixed amount into a savings account from the income which comes in handy for planned goals like vehicle purchase, college fees etc. Financial planners recommend having a safety net with income of 5-6 month earnings which can be drawn for desired purposes. You can invest this money in Fisdom’s Smart saver feature which offers instant redemption and gives returns better than a bank savings account.
SIP- best mutual fund investment app-fisdom

Nifty at all-time high 9300, where to invest?

It is a good time for NSE Nifty. Nifty ended 2016-17 with 18.55% in gains and began 2017-18 with a record-high of 9,221.80. This is in response to our currency getting stronger, a strong political center, the historic GST, an increasing enthusiasm for IPOs, elevation in the earning progression and the diminishing commodity prices.

Foreign investors have pumped in Rs 49,000 crore of shares last year and the Rupee is holding strong against the US Dollar. Also, domestic investors, have invested Rs 6600 crores, mostly because of the lead by mutual funds. Moreover, on April 25 Nifty hit an all-time high of 9300! This is in-part credited to the banking and auto sectors, and some NBFCs performing exceedingly well.

The everyday investor is wondering, where should he/ she invest with the current market conditions? Let us look at a few areas to invest in.

Since Nifty is at its highest, is it safe to invest?

One thing is for certain, the current growth is fueled mostly by liquidity when compared to earnings growth. The room for price to earnings ratio (P/E) is limited. The higher price to earnings ratio have arrived in a period when the growth in earnings since the past two years has been close to zero. Since 2007, India’s nominal GDP has grown by three and a half times. Yet, NIFTY has grown by barely 50%. There is catching up to do as the nominal GDP continues to grow at 12%.

This may not be the best time to celebrate and invest in Nifty as Capex, bank credit growth and capital efficiency are at a multi-year low. Additionally, even though reforms have been initiated by the government, they will only bear fruit in the years to come. Expecting immediate results from the government’s policies is a foolhardy notion.

India is a nation that is indeed growing at a rapid pace. We have a young population with an average age of around 29, much lower than other Asian nations such as China and Japan. Both Japan and China have witnessed falling dependency ratios and a consequent economic boom due to the same. India seems to be experiencing a similar period. Hence, there will be periods when the valuation is higher than average and we will also face swift corrections. This is the period to invest wisely and create wealth for our coming generations.

Even though Sensex and Nifty are growing exponentially, various sectors are growing slower. So what to do?

Choose the right stocks

Selecting the perfect stock for the long-term is the challenge. Do not just put all your money on a popular stock or based on advice from a family relative or friend. Choose companies that have proven to work in the long-term or companies that have a potential to grow.

Diversify

Diversify between small, mid and large-cap stocks. Small and mid-cap stocks should be 30% of your portfolio. Large-cap stocks are safer while small-cap may have high risks, so diversify to reduce risk. Large-cap stocks are valued at a P/E multiple of 23 times, close to 20 (their 11-year average). Mid-caps are pricier at P/E multiple of 30 as they averaged at 18 over the past 11 years. With mid-caps being overvalued, stick to large-cap funds currently for best returns.

What other areas of invest should you consider?

Despite a strong market, many people are not comfortable investing in the stock market. Even if they can handle the risk they do not appreciate the research that goes into choosing stocks. For people seeking good returns, at lower risk and without much research – mutual fund investing is the best option. You can direct a fund manager to pick your stocks. The manager can buy, sell or hold your stocks after you give the approval to do so. Look at the mutual fund’s long-term performance, investment costs and the underlying assets. Another benefit is that you can automate SIPs that will leave your bank account every month, reducing further effort from your side.

 

Investors can grow their portfolio and work towards fiscal success by way of systematic investing and ideal use of current opportunities by capitalizing more when correction is because of events having short-term ramifications. Even in a market that is rising, there are multiple stocks that do not do well. The current growth in stock market is not an overall growth so choose your investments wisely!

Why is it wise to switch over to robo-advisor for investing?

Like all the other aspects of life, the way we manage our wealth is also set to transform with the advent of robo-advisory, the latest gift of technology in financial services industry. Over the years, the industry has witnessed many technology-based improvements and each came with its own merits and de-merits.

Robo-advisory, though has been a part of financial planning for more than a decade in the western countries, is still in the nascent stage of development. An online wealth management platform which provides automated, algorithm based portfolio management services with minimal human intervention at a very low cost, robo-advisory is slowly but steadily gaining popularity and it may be ideal to switch over to robo-advisory in times to come.

Sound financial advisory involves asset allocation after assessing the income, expenses, risk-taking capacity and financial goals of a person. Traditionally, bank managers or insurance agents have been filling in the gap of financial advisors to provide wealth management services to the majority of the population in India. Owing to the huge advisory fees, structured financial advisory is limited to a very few.  More often than not for an average Indian retail investor wealth management is more of a product push rather than sound financial planning. Hence, robo-advisory is the ideal solution to meet the gap in wealth management needs.

The distinct advantages of robo-advisors over human advisors include:

Use of algorithm based asset allocation– Unlike traditional advisory; in case of robo-advisory asset allocation is based on scientific calculations based on the inputs provided by the investor. Once an investor registers for robo-advisory he has to enter all his personal details like income, expenses, monthly savings, and future goals. Apart from this a risk profiling is also done through a series of pre-set questions. Based on the input provided by an individual, asset allocation and investment portfolio is done.

No emotion-based decisions– Many a time, investments are made on emotions rather than proper planning. Making investments through friends and family, or following the herd mentality, over too bullish about a stock or sector are some of the factors which lead to poor choices and investment decision for most of the investors. Robo-advisory does not have any room for such emotions as the decision is based on a rational independent algorithm based calculations. Portfolio selection is based on trends of market movements keeping human emotions away.

Periodic Rebalancing: For any portfolio to perform well, it is extremely important that it is reviewed on a regular basis so as to maintain the desired ratio of debt and equity. In case of human advisory, this rebalancing of portfolio is hardly a case. With a huge number of clients to service an advisor can hardly do periodic rebalancing for its clients. He would only approach his client at the time of a new product launch and try to sell the product without taking into consideration his actual asset allocation. But in case of robo-advisory, this is not the case as it makes suggestions to periodically adjust the portfolio to the desired asset allocation. Investors can greatly benefit with this re-balancing by selling some investments when they are high and buying when they are low.

Reporting of trigger events and providing suitable course of action: The capital markets all over have multiple things happening simultaneously and each event impacts the performance of your portfolio. For a human advisor it is difficult to keep track of all these events and provide this information to individuals, but automation ensures that each and every event gets captured and alerts the investor accordingly. Let us take the case of mutual funds, fund manager has a direct impact on the performance of the fund. As an investor this information is vital and advisors may not be able to communicate the same to their investors either due to lack of communication or information. However, all this is constantly reported to the investor via SMS and email in case of robo-advisors along with suitable course of action.

Lower costs make robo-advisory affordable to everyone:  Robo-advisory involves much lower costs than human advisory. The high costs involved in human advisory restrict such services only for high net worth individuals. But robo-advisory provides ease of access and advisory services to all type of investors.

Thus, robo-advisory can be a one stop solution for all your investment needs, especially for the tech-savvy investors who prefer to do everything online. Apart from the fact that these portals have easy access and provide financial planning based on scientific calculations, there is no minimum investment amount for you to start investing.

Are you an insurance misselling victim?

The insurance sector, which is one of the fastest growing sectors of the economy, with life insurance penetration increasing to 3% in 2016 as compared to 1.5% in 2000 and non-life insurance penetration increasing to 0.7% to 0.5% in the same period. Life insurance contributes 79% and non-life insurance contributes the remainder 21% in the sector. Though the industry is growing steadily, sadly it is also the industry which witnesses the maximum amount of mis-selling. Mis-selling happens in both life and non-life insurance policies and is more prevalent in life insurance policies. Product mis- selling in life insurance constitute the top reason for customer grievance and accounted for 49% of the total complaints of 2,04,701 registered with IRDAI in the FY2015-16.

An insurance policy is to protect the policy buyers, the rampant practice of mis-selling in insurance has left the investors hanging in times of need. Over the years, the percentage of mis-selling in insurance has increased dramatically and it remains a huge concern in the insurance sector as more often than not investors find themselves cheated and trapped.

Here are the reasons which contribute to mis-selling in the insurance sector:

Higher Commission in Insurance policies as compared to other financial products: Commissions on the premium collected are very high in the insurance sector as compared to other financial products. Under the new regulations the commission in life insurance policies range anywhere between 40% for term plans and for bundled plans( which provide investment and insurance) it is anywhere from 15% to 35% depending on the premium paying term. This is very high when compared to other alternative investment options such as Bank FDs and mutual funds. This invariably leads to pushing insurance to customers without proper financial advisory.

Mis-selling of Insurance Policies by Banks: Banks have undergone a sea change from the traditional banking services as they have been selling third party financial products. The insurance industry is also capitalising on the huge network of various private and public sector banks to increase its penetration. Though the insurance sector has witnessed significant growth through the banking sector, higher commissions and fees involved banks have led to malpractices and  mis- selling insurance policies to its customers without looking at the financial needs of an individual. Many a times customers are forced to buy insurance policies when want to avail other banking services such as processing a loan or opening a locker account.

Selling insurance plans as investments: The purpose of life insurance policies is to provide protection cover to the family of the deceased in case of an unfortunate event. Traditional term insurance plans thus offer death benefit in case of demise of the life insured and no money is paid otherwise.  With the introduction of ULIPs or unit-linked insurance plans, agents started selling insurance plans as investment plans.  As ULIPs invest in capital markets by through investments in individual stocks, bonds and mutual funds, an investor is assured some returns at the end of the policy. A sound financial advisor would always tell his investors the difference between insurance needs and investment needs are two different things and should not be mixed. The primary purpose of an insurance policy is protection and that of investment is to grow your wealth.

Selling Insurance as short-term plans:  Life insurance policy is a long term product with the intention of providing life cover to an individual for a lifetime. Many a time, agents and advisors give incomplete product information and mis-sell policies to meet their own sales targets. In all likelihood such advisors would either change their job or company and the investor is left with a wrong policy in hand. Hence, it is extremely important to read all the documents related to the policy.

Lack of awareness in Customers: One of the biggest reasons for mis-selling in insurance is lack of knowledge and awareness among customers. Even the most educated ones forget that insurance is meant to cover risks and not generate returns. Insurance should purely be purchased with the intention to safeguard the interest of near and dear ones in times of need and should not be viewed as an investment or tax-saving instrument. Introduction of complex products in insurance has left the buyer utterly confused which has led to making wrong choices. Hence, there should be more efforts to inform customers about buying insurance for protection rather than looking at it as a short-term, tax saving investment opportunity.

Though the insurance regulator IRDAI has time and again warned against the mal-practices in the insurance sector mis-selling still happens all across the country and across all income groups. Therefore, the onus lies on the advisors and agents to not mis-sell insurance to innocent buyers.

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