FMC in Index Mutual Funds

Did you know? There is a difference of between 0.5% to 1% on the Fund Management charges between an Index Mutual Fund and a diversified Mutual Fund. The definition of a diversified mutual fund we are using here will encompass diversified equity funds, sectoral funds, ELSS, market capitalisation oriented funds, etc. For long term investors there is a clear case for shifting a significant portion of investments into Index funds. In economies with a long history of equity markets, it has often been observed that Mutual Funds which digress from an index find it very difficult in the long run to catch up, let alone beat index performance. In a country such as India equity is more of a recent investment avenue spanning only a few decades; and that too the inclusion of equity as a part of a average portfolio has happened only recently. Still a major part of savings in India happen in Fixed Income securities and only a very small percentage actually finds its way into equities. As the markets move forward with underlying intrinsic and economic growth, a new interest in equities from a fresh set of investors who were hitherto uninclined or financially incapable is pushing the markets in completely untested territories. At this juncture it would be good if there was a way to educate these new investors to follow a principle of index investing... because at the end of the day if the index (which essentially means a compilation of some of the best corporates in India, the list being periodically revised to filter out under-performers) does not perform, then it is highly unlikely that there would be any other investment idea within the equities space that would have performed over a similar duration.

Beware of certain ULIPs - 100% charge in 1st year

Did you know? There are certain ULIPs where your first year premium allocation charges are 100%. They claim that they are investing your funds in a so called fixed deposit type fund wherein you will not have to take market risk on the first year investment, and the company guarantees some return on this corpus. Now here's the actual deal. If you go into the fineprint (very few of us actually do), you will realise that they are giving you a return of around 120-130% of your first year premium in the 10th year, in some cases around 200% in the 15th year, and in yet other policies around 250-300% in the 20th year. If you actually compound these returns you will be startled to see that the actual annual return is only around 3-5% p.a. much lesser than any deposit. This is nothing but a marketing gimmick to ensure a very high payout (almost 40%) to the advisor recommending this policy to you.
In almost all cases there are certainly other policies from the same insurer wherein neither do you have to pay such high charges, nor does the advisor earn such absurd fees. Please go through the fineprint before you make a buying decision.

Mis-selling of ULIPs

I feel there should be penalties for banks who mis-sell Unit Linked Insurance products to their customers who have no clue what they are getting into. Few years down the line they suddenly realise that they haven't even broken even on their investment in spite of the markets having delivered 25%+ CAGR. There should be a forum where such complaints can be registered, and appropriate financial compensation can be levied.