Skip to main content

How to Pick a suitable Investment product

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 


Financial products can be offered to investors in two distinct frameworks. The first is 'disclosure of information', wherein the assumption is that investors will be able choose a product based on the information provided to them. The second is 'suitability' framework, in which the product's key attributes are framed in terms of their suitability to investors to enable them to choose correctly. Regulators across the world, keen to correct misselling of financial products and advice, recognise that full disclosure is necessary, but not sufficient, to ensure investor protection. The code of conduct created for investment advisers places on them the onus of ensuring that the product being advised is suitable.


The adviser's primary job is to find out if a product is suitable to the investor. However, he operates in the realm of regulation and producer incentives. Mis-selling happens when unsuitable products are sold to gullible investors to earn a commission. If a 15-year Ulip is sold as a 5-year product with gains to an NRI investor looking for investment rather than insurance, the suitability criterion is not met. It is easy to assume that investors will read the offer documents. They don't.


There are two ways to ensure that investors are not sold products that do not suit their needs or risk preferences. The first is an investor-side framework, which asks for information about the investor to assess what is good for them. The second is the product-side framework, which provides reliable information to enable assessing the type of investor for whom the product may be suitable. It is the responsibility of the regulator to ensure that both these are in place.


The investor-side approach requires KYC. Beyond the paper verification of address and identity, the adviser should know the financial situation of the investor. Does he have a specific purpose in mind while investing? How sensitive is the investor to loss of capital? Does he depend on the income generated by the investment? These are the questions that need clear answers before an adviser can determine the suitable product. The adviser should also know how to help the investor manage his personal finances and make suitable choices in financial decisions.


A young investor may want to invest in equity, lured by high returns, but he may not have built adequate wealth to suffer a loss. A salaried investor may have too many loans and he should repay them before investing. A retired investor may worry about inadequate income without considering options to generate income from unused assets like property. It is the adviser's job to know the investor's needs and preferences and offer products in that context. Unless the regulators insist that no financial product can be sold without assessing the suitability, mis-selling may not end. The Sebi (Investment Adviser) Regulation does not plug this gap.


The product-side framework requires that information disclosed to investors enables an actual assessment of its features for suitability. The failures here are stark because producers comply in word with information disclosures and regulatory disclaimers and focus on selling the product. They use incentives and commissions, and marketing push to gather assets. Producers offer a wide range so that investors can be found for each variation, differentiation or segmentation.


The primary responsibility to protect the investor is that of the regulator. The disclosure of information alone will not serve the purpose of suitability. Increasing the number of disclaimers will also not do. Key questions pertaining to suitability should be answered by producers in simple language that can be understood by investors. Product features that distort this understanding should be disallowed. Ulips should be required to state that they are 15-year products with costs that make short-term investing unprofitable. Instead of saying that mutual fund investments are subject to market risk, they should say that the value the investors will realise on selling units depends on the market price at that time. We need product labels that enable
choice based on suitability, like the green dot on vegetarian food packets.


The problem is that sales targets define product features and marketing literature. Regulators let poor products pass without gatekeeping. The RGESS, which has been designed to fund the disinvestment program of the government, is an example. A 3-year investment in equity is risky. Investing in PSU stocks is a risk that not all investors can take. A diversified RGESS fund is more costly than an index fund. Closed-end short term funds in equity are risky. The product fails most criteria for suitability. Still, it's defined by the government, encouraged by regulators, incentivised by producers, and mis-sold by advisers in the tax-saving season.


Suitability is a responsibility. Even a bus journey needs defining where one goes, how many tickets one needs, etc. What stops us from naming, describing and labelling financial products with the same responsibility?

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax PlanInvest Online
  2. HDFC TaxSaverInvest Online
  3. DSP BlackRock Tax Saver FundInvest Online
  4. Reliance Tax Saver (ELSS) FundInvest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) FundInvest Online
  7. SBI Magnum Tax Gain Scheme 1993Invest Online
  8. Sundaram Tax SaverInvest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFundsInvest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...
Read more

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...
Read more

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...
Read more

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...
Read more

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now