2023-06-09 08:13:33
There's a lot of discussion about mis-selling of financial products. The sad reality is that mis-selling has always been rampant in financial products.
There are a few common sense precautions you can take to avoid being a victim of mis-selling.
Mis-selling is a result of flawed incentives. Most banks and intermediaries are sales-driven, and they have targets. They end up mis-selling to meet these targets.
1. The best way to avoid getting mis-sold is to have a basic understanding of finance. One reason mis-selling persists is because people don't understand the basics and look for shortcuts.
Having a basic understanding of finance is a life skill. Start with Zerodha Varsity.
2. Banks are only for banking.
Use your banks for banking activities. When it comes to buying financial products, there are always far better, cheaper, and more transparent alternatives. We've explained this in the post above.
3. Never mix investments and insurance.
Avoid products like Unit Linked Insurance Plans (ULIPs). The products are sold with a sales pitch they offer the best of both worlds— investment + insurance, in theory. In reality, they offer the worst of both worlds.
4. Avoid traditional insurance products like endowment and money-back policies.
These products are sold with sales pitches like invest X and get Y after 10 years. If you calculate the return, they are, most often than not, worse than a fixed deposit or government bond.
5. The elderly are the biggest victims of mis-selling.
Senior citizens are easy targets for mis-selling. Even the elderly with cognitive impairments aren't spared Talk to your parents and ensure that they never buy any financial products without your knowledge.
This takes care of what not to do. As for how to take care of your personal finances, the post has tips and resources.
If you have any questions, please post them here, and we'll be happy to answer.
https://zerodha.com/z-connect/coin/coin-newsletter/how-to-avoid-being-a-victim-of-mis-selling
7.7K views05:13
Z
