It is a story that is told innumerable times during the first
three months of every New Year. Financial advisors of every hue would recount
horror tales of how individuals who rush for 'last minute tax planning"
end up with an investment portfolio of "wrong products" that doesn't
serve any purpose. However, the moral of the story seems to have had no desired
impact on the audience.
Most financial advisors claim that the ancient practice of
last minute rush is going on even this year, too. Typically, they end up buying
insurance products, as insurance companies are most active during this period. In
fact, most of their business comes in the period of January to March.
As you might have guessed already, "wrong product"
in financial parlance means an insurance product and financial advisors often
claim that most buyers are saddled with these products — ranging from term
plans to unit-linked products to pension products — forever as they have no
idea how to take remedial actions. The main trouble with most of the insurance
products is that these are costly and are also long-term products.
It is equally painful for clients because in some cases they
will lose money as most insurance products wouldn't make money in the first few
years because of charges deducted upfront from the premium, and they also have
to forego some more money because of surrender charges.
PERILS OF THE FRIENDLY ADVICE
The trouble begins when someone shops for tax-saving
instrument in a hurry. If he/she walks into a bank for a 5-year fixed deposit
that would fetch deduction under Section 80C, the bank official would start
talking about a product that gives assured returns plus lot of extra things
that an FD doesn't offer. If it is not a bank official, a neighborhood
investment expert is always there to sell an insurance product with a very
small cover because it would fetch him/her a better commission. (Please, go
through my early post know your financial advisor)
Investment experts say most individuals go blindly by what
the sales person says and they don't even bother to cross-check the basic
facts. "Since they are in a rush, they don't actually have the time to get
into the details. They are mostly happy that their tax-planning is done for the
year.
