“Buss Naam hi Kaafi hai” might be an impressive punch line for our favorite actor or to promote some product, but when it comes to making investment decisions, go by what Shakespeare says, “What’s there in the name ?”
Although there have been numerous arguments for regulation to be made for the nomenclature of the financial products, so that the common investors are not cheated. But as smart and aware investors, we cannot let the companies take us for a ride, till the time the regulator does not take any decision on the same.
The most misguiding nomenclature is for the ULIP pack. A “Smart Kid Plan” doesn’t ensure (or rather certify) your kid to be smart (you don’t even need his certificate, do you?) Nor does a “Young Star or Young achiever plan” make your kid a star or an achiever. A “Head start Plan” does not necessarily give a head start to the kid, and neither would a “Child dream plan” can assure to fulfill his / her dreams.
The nomenclature for all this plans is to hit at the emotional aspect we have towards our children. The companies and the agents canvass the client targeting their sentiments for their kids and convince them to such an extent that “If you really love your child and want to do something for this, then only this plan can do that”.
Agents! Please give me a break. Just because I love my child, does not give you a liberty to take me for a ride. What you are trying to sell me as a child plan is basically a ULIP (Refer to my article “Look Before ULIP” for more details on ULIPs). By now, I am very well versed with the dark side of ULIPs, thanks to media. I know how to plan for my child. Yes, I understand that in order to beat inflation, I will need to invest in equities. But, that does not mean, that the ULIPs or the child plans (just because the names suggest so) are the only options available with me. I can very well create a well diversified portfolio by selecting 3-4 good funds and starting an SIP. I will take a term insurance for myself to take care of my insurance needs. This way I will secure my child’s future even if there was some unfortunate mishap to take place. By this way, I haven’t got any fancy name for my plan but I can make my child smart, star, achiever with my own plan.
When it comes to misleading names, mutual funds come at no exception. The “Balanced Funds” are not really balanced (The word balanced gives a picture of a 50:50 equal proportion of debt and equity to a layman investor).
The “monthly income plans” do not give you assured monthly income. So those who are retired and thinking of MIPs analogous to MIS of post office, this is a wakeup call. Although MIPs are debt oriented hybrid funds, targeting capital protection, it can be a good alternative for your fixed deposits. It cannot be the right product to provide you monthly income for your routine expenses, especially when you are retired and dependent on that income.
In case of a health insurance, a “Cashless” facility need not be actually cashless. At times, you might be required to pay to the hospital from your pocket and later get it back, once the hospital receives an authorization from the health insurance company.
The point I am trying to make here is, please do not get carried away by the name. There might be much more to read into the product, than what is apparent by the name. Although it is a generic perception that the name would be a reflector of the nature of the product, the truth might be different. On the contrary, this perception of the investors is used by the companies to name and market their products to attract investors.
The Author Prof. Saurabh Bajaj (BE, MBA, FRM) is Chief Investment Planner with Nidhi Investments, Mumbai. He may be contacted on firstname.lastname@example.org if you have any questions.
(The views mentioned in the article are personal opinion of the author. The readers are advised to use their own judgment and consult their investment advisor before making any investment decisions.)