ur people, who excelled in savings, have now been showing increased interest in investments. Most of the people who considered gold, real estate and insurance as investments have now turned their attention to mutual funds and share markets. There has been increased investment in financial markets. But ‘mis selling’ becomes an obstacle to this healthy change.
Mis selling is the way of selling investment products by providing wrong information or incomprehensible information about the investments. In share market investments, some agents may entrap us saying ‘if you buy this share you will get 100% profit within a few weeks’. Some insurance agents may ensnare us by saying ‘if you buy this policy, you need not worry about the expenditure on your kids’ studies and marriage’. Some real estate brokers may plant deceptive seeds like ‘if you buy this piece of land you can sell it for double the amount within five years’.
By way of these mis selling acts the investors’ money is invested erroneously and the investors do not enjoy the full benefit of their investments.
Therefore, they lose confidence on investments. Witnessing their loss, other prospective investors too hesitate to invest. This will discourage the investors and will erode the habit of investing. But if we learn the ways of avoiding mis selling we can easily carry out our investment plans in the best way possible. Let us learn from the experts of respective investment areas where we can avoid mis selling.
Share Market (V. Nagappan, Investment Expert)
The first thing to avoid mis selling in share market is to look at any suggestion on investment with an eye of doubt. At present, free trading call and trading tips are shared through WhatsApp. We don’t even know who is sending that information. Then how can we confidently execute those trading calls.
Trading tips have also been shared using major investing companies like, HDFC and Sharekhan. Even if it is shared by major investing companies we should look at it with an eye of doubt.
When so many have been providing service on payment, you should think, why should somebody do the same free of cost. What could be their objective? Don’t see who is suggesting but look into the value of those recommendations.
The performance of the recommended shares through trading tips should be carefully reviewed. How a particular share has been performing in a week, month or a year should be carefully observed. If a particular share has peaked within a week, it should be doubted that many have been informed about the share and it has been sold to high networth individuals. And we should consider whether it is right to invest on that share at this point.
Shares should not be bought if they have been sold before they were recommended publicly. A share with a price of Rs 100 has increased only to Rs 150 instead of its potential to raise upto Rs 200, it can be bought liberally provided it performs well. Similarly, when the price of the recommended share dips down than what was told, again there is no issue with the performance of the share. It has dipped down because of the impact of some unanticipated news and so there is nothing wrong in investing on that share.
With regard to IPO, we are able to know the details of how many IPOs the company has managed and among them, how many shares have been listed under premium, how many shares’ price has increased afterwards. Similarly, we should look into the performance of shares already recommended by the company or analyst.
If the intention of what is recommended is right the suggestion can well be considered. Similarly, the duration of the recommended share should be looked into. What is the duration of its target, and how much could be the stop loss should also be looked into.
Therefore, whatever is being suggested should be treated as a speck of fire and accordingly should decide whether to buy it or not. The fundamentals of investing on a particular share should only be decided by us. We should only try to know the basic details of investing our money and proceed.
How to find out fraudulent plans
“There are many who have invested and lost in fraudulent plans. But, still there are people who fall for those kinds of plans. In order to find out fraudulent plans, one should first look into their advertisements. If the advertisements are attractive and not confined to the regulations, one should definitely doubt about it. There will not be any attractive jargons in the investment advertisements by good companies. It will only detail about what is the investment and what the return is. But with regard to fraudulent plans the tone of their advertisement will be, ‘If your life gets repeated blows, don’t worry. It is enough to invest only Rs 1000 per month and you will become rich’.
Second, it is ok if the return assured to you is one or one and a half percent more than the plans of similar nature from other investment companies. One should be cautious if it is more than two percent.
Those who are engaged in fraudulent plans usually lure investors by providing the assured returns fully to the first 100 investors. Then they will make those investors to bring 10 more investors each, by making them speak for the company saying, ‘I have invested on this plan and have become a millionaire’. The number of investors will then gradually increase to 100, 1000 and 10,000 and one final day the company will swindle all the invested money and disappear. Therefore never invest on something based on the words of the others. This is because, there are people, who do not invest even if a company, which continues to do business for years gaining the confidence of the public and doing a good job, approaches them directly but immediately do so based on the hearsay, or when someone claims big returns from an investment. This attitude should change.
Before investing on any plan, you must verify whether the investing company is a registered one and whether the plan that you are going to invest on is also registered. If it is a share investment, it should be registered under SEBI. If it is a chit fund it should be registered under Tamilnadu Chit Fund Act. If it is insurance it should be registered with IRDAI. If it is a non banking finance company it should be registered with RBI.
Mutual Fund (Srikanth Meenakshi, Funds India)
In order to avoid mis selling in mutual funds, it is better to know the details pertaining to it such as how it is functioning, what are the different types and their plans, what are the meanings of the plans, what are the duration and risks involved in the plans, and where the money collected is being invested. If there is no understanding about these aspects mis selling cannot be avoided.
For example, it is not right if a mid cap fund is recommended for a two year investment. This recommendation is wrong even if the fund performs well. If one wishes to know about it there are some basic facts that one should be aware of.
It’s important to look into the performance!
“You should also know about the person who is selling the mutual funds. You should get details from your friends who are already dealing with him on mutual funds. Not considering that the person who sells it behaves and speaks smartly, one should focus on how the investment made by him on the funds performs and depending on that data you should consider the person’s suggestions”.
Insurance (S Sridharan, Wealth Ladder)
Mis selling is the most prevalent in the area of insurance. Most of the time, they advertise only the superficial details such as ‘low premium, wide coverage’ and, ‘single policy, multiple disease insurance’, leaving behind the important information about the insurance, and by nagging someone continuously, they keep selling their policies.
In order to avoid mis selling with insurance policies one should at least be aware of some basic details about insurance plans. Because of ignorance and lack of understanding about insurance mis selling has been happening.
With regard to medical insurance, the details such as what are the diseases covered in the policy, what are the claiming methods, what kind of claim could be declined, should be clearly known from the agents. In regard to insurance policies, it should only be your own decision. You should be clear about what is required and what is not.
Only after fully reading the policy, one should buy it!
“Though it is expected that the agent should provide all the details about the policy, the consumers should also know the complete details about the policy and then buy it. The details regarding, what type of policy it is, what is covered with it, if it is an investment plan what is the duration, what is the return, whether the policy you intend to buy is connected with the shares, should be read completely and only then a policy should be bought”.
Real Estate (Manisankar, Sai Builders)
With real estate, mis selling happens only through false promises. The first one is delay in completion. They commit that the house construction will be completed in 2018. But they keep dragging for another 6 months or a year, beyond the assured date of completion. In order to avoid it, it is better to have a signed agreement mentioning about the house rent and if the house is not completed within the assured time, monthly rent should be given by the builder to the buyer.
Second is the car parking space. Assuring that there is car parking space they will take one or two lakhs. But it will only be a common area then. They will draw parking lines in the common area and sell the space. Money should not be paid for open car park. Therefore, it is better to check the space allotted for the car park in the layout plan.
You should also check whether the area where you intend to buy a house or in the nearby area, there are any water bodies. Without waiting for the builder to inform you, it is better you try to get the details about it. Next issue is related to additional facilities, such as swimming pool, club house, tennis court etc. without clearly informing what is free and what is on payment they sell the properties without specifying any details. One should be careful about it. Whatever the facility offered, one should get the complete details about it.
The responsibility of maintaining the lifts and motor pumps should also be clearly known and defined. Additionally, their quality, power and capacity of usage should also be ensured. Otherwise, they will demand money from the house owners for the loss of those infrastructures.
Before buying a house, it is better to get the complete information about their promises and assurance and then decide accordingly. All those details should be reflected on the service contract. The recently implemented RERA Act provides full stop to all these sort of mis selling practices.
It is important to be aware of the stability of the building!
“It’s important to know about the stability of the building that you intend to buy. If the building collapses, you will be the most affected as a house owner. Be it money or house, it is not that easy to get it back. Every floor should be tested with dummy load and only then it should proceed to the next floor, based on the stability. Stability certificate for the building should be received. One should be aware of these basic details.
(This article written in Tamil by J Saravanan for Naanayam Vikatan magazine dt 10/12/2017 has been reproduced in English by V Amalan Stanley)