Banks selling own fund house schemes may not be good for you

When you buy a mutual fund through your bank, is the bank advising you or acting as a vendor? The answer to this question is important because the product you finally walk out with will either be a product that best suits your needs or a product that maximises the bank’s own interest. According to data compiled by Outlook Asia Capital Wealth Management India, which put together commission data from the Association of Mutual Funds in India (Amfi) (http://bit.ly/2a1hFAL ) and individual fund house commission numbers from their websites, banks are acting as advisers while wearing the hat of vendors. If you did not pay a fee for the advice in the bank and then walked to another desk to buy the product, the bank has mixed up the two roles. Anecdotal evidence shows that customers are influenced by what the bank manager has to say on product choice. It is unusual for a person to go to a bank asking for the product by name. It is usually a push from the bank that sees the fund build up in the account and then makes a sales pitch.

 

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Plenty of bad news but markets are up. Should you worry?

RRR exit, hmmm. Brexit, meh. Shrugging off plenty of bad news, the Sensex hit an 11-month high this week. What’s going on? The story for India is the thickening of the retail equity pipeline, not directly in stocks, but through institutions such as pension funds and mutual funds. Sustained flows of retail money is coming in. And it is coming in a staggered manner. Indian household money has traditionally been in real assets such as gold and real estate, in bank fixed deposits (FDs) and to some extent in life insurance policies. The organised sector contributed to their provident fund, which again went into bonds and other fixed return paper. Think about the change in our own investing behaviour—we swore by FDs and Life Insurance Corporation of India policies, but are now die-hard SIPpers (investors into systematic investment plans of mutual funds). What changed?

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Ulips are better, but still not good enough

Is a unit-linked insurance plan (Ulip) a good product? The question is asked quite often on my Twitter timeline. Life insurance industry chief executive officers talk about this all the time. And there is some media chatter on the coming of age of Ulips. What’s the truth and how should you think about it? Let us apply the principles first. A financial product is bought because it solves a financial problem you have. It should perform on metrics of cost, benefits, tax efficiency and ease of transaction. It should compare well with other products that solve the same problem.

 

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