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Sunday Ki Pathashala | EP – 1

by Koushik Gope
Published: Last Updated on 0 comment

✔️Knowledge is Power

✔️Financial Literacy Series


1️⃣ Never mix insurance & investment

  • Most of us end up buying an insurance + investment product either because it is sold to us aggressively or because we get attracted to the tax-free / guaranteed maturity of the product. AVOID!
  • Buying these products neither give you an insurance advantage nor an investment advantage.

(a) The insurance is at 10X your premium. So, on a 1 lakh premium, your insurance is only 10L, which is nothing.

(b) Traditional products generate roughly 5-6% returns only. You do not understand the low returns because the product says to invest 1L & we will give you 2.5L after 20 years, which is a 4.5% return 🙂

  • If you want to withdraw before maturity, you don’t get back more than 40-50% of the fair value.
  • ULIP’s can generate slightly higher returns over traditional policies but has a 5 years lock-in & most ULIPs have a very high cost, like Premium Allocation Charge, Mortality Cost, Policy Admin Charge, AMC Charge, etc.
  • The higher your age, the higher the cost.
  • Also, in ULIP’s, if you invest more than 2.5 Lakhs per year, your maturity is taxable. It’s 5L in traditional policies.
  • A combination of SIPs in Mutual Funds + Term Insurance can do a much better job.

2️⃣ Fixed income is for capital protection & not chasing returns.

  • Everyone wants higher returns, but trying to do that on a fixed income can be fatal.
  • Unlike Equity, where the price goes down, there is a probability of the price coming back up. In fixed income, if the company defaults, your capital is wiped out.
  • Anywhere in fixed income when you are offered higher returns, understand that the risk is high, simple.
  • Try & use the fixed income to protect capital over trying to generate very high returns.
  • Avoid investing in bonds of companies that you have not even heard of just because it is offering you higher returns. It can be packaged as secured bonds, but trust me, it’s not how you think it is. 🙂

3️⃣ Don’t invest in products you don’t understand.

  • It’s a myth that direct equity generates more returns than equity mutual funds. Most investors I meet would have been better off doing MF’s over direct equity because they don’t know why they have bought what they have bought, how much to buy is a question, what price to buy is a bigger question & when to exit is the biggest unanswered question.
  • I would avoid doing a small case, a PMS, or an AIF & stick to mutual funds for transparency, data availability, strong regulation & most importantly, the track record. I can invest in domestic equity, international equity, fixed income, gold, and everything using mutual funds.

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