Your Money: Don’t Fall For The Marketing Spiel

Each product has an USP, be sure it aligns with your investment needs.

People usually do not buy good investment products, but buy stories and packaging. If the provider says “it is a good equity fund” it may not attract people. If they say “it is an equity fund run on a proprietary model back-tested for adverse market conditions with an objective of generating superior alpha” it sounds attractive. Since a market has been created by people, expecting stories and taglines, manufacturers have come forward to fulfil that space.

Product pitch

The product collaterals — brochures, pamphlets, presentations, etc., are prepared to market / sell the product. Nothing wrong with that. In financial products floated by entities regulated by Securities and Exchange Board of India (Sebi), for instance, mutual funds, every product is approved by Sebi prior to launch. Hence, marketing collaterals can mention only approved features.

Features mentioned in marketing materials do exist in the product. What is important for you is to understand whether you require it, whether it is suitable for you. You should not invest in a financial product just because the features are attractive.
When an insurance company launches a single premium product that grows to seven times of the initial investment amount in 30 years, it looks attractive. To understand this, you have to calculate the compound annualised rate of return that makes it grow seven times the principal amount. When this product was launched, the rate of return available on 30-year maturity government security (government bond) was higher. This will not be mentioned in the marketing materials, that an instrument with a higher degree of safety (government bonds vis-à-vis insurance companies) is offering a higher return.

Current scenario

The market regulator has defined the product categories that may be launched by AMCs. Newer AMCs, and older AMCs that do not have a fund in a particular category, have the scope to launch new funds, and are doing so. Nothing wrong in buying a new fund offer (NFO), but do it only if it suits your investment profile and requirements.

In the equity market, derivatives is a useful segment for price discovery and imparting liquidity. On one hand there are people offering ‘courses’ and ‘guidance’ in derivatives trading, on social media.

On the other hand, Sebi is communicating that nine out or 10 retail trades in equity derivatives lead to losses. Even when retail participants make profit, net of brokerage and expenses, it is limited.

It is for you to understand whether you need to indulge in derivatives trading.

If you are a professional in a field other than financial investments, then your objective is to grow your wealth over a long period of time, not indulge in day trading. In investment products, there is an USP for every product; pick the appropriate one.

Refer: https://www.financialexpress.com/money/your-money-dont-fall-for-the-marketing-spiel-3326772/

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