My interaction with a personal banker….

While I had heard many stories of rampant misselling of financial products, I was not really aware of the brazenness with which it was done. Until, one fine afternoon, I had a conversation with a personal banker. 

I had gone to the bank with my husband to liquidate a fixed deposit which was in our joint name. While the banker was taking care of the procedural formalities, he casually slipped in the topic of how fixed deposits earn low returns post tax for the highest tax bracket earners. He then went on to mention that the bank had a better product which can earn higher than FDs & that too, tax-free guaranteed returns.

Besides PPF, I had not heard of any such product. I decided to lend him a humble ear without disclosing my financial planning background. Here is how the conversation went: 

Banker: Madam, instead of putting your money in FD, you can invest every year for 7 years in our product which can earn you 8-8.5% guaranteed tax free returns

Me: What is that product?

Banker: It is a debt product. It will invest a major portion of your funds in government securities. Last year, it yielded about 8.5-9% returns

Me: Is this a debt mutual fund product?

Banker: No

Me: Aren't G-sec yields linked to general interest rates and the liquidity in the markets? Then how can your product assure guaranteed returns

Banker: No madam, the returns are not guaranteed (contradicting his earlier statement), but over the past one year, it has yielded good returns and going is expected to remain good

(I was wondering how it would sustain over a long period of time especially since the interest rate cycle after peaking out had gradually reversed over the past one year. Till this time, I am not told what kind of a product the banker was talking about.)

Banker: Plus, you also get a free life insurance cover! And, you get your investment plus bonuses back after maturity of 10 years

Me: Are you talking about limited pay endowment insurance plan?

Banker: Madam, nowadays you get free insurance cover with everything, even if you buy debit card/credit card…!

I was quite taken aback with the answer and I found it meaningless to further continue the conversation. I realised that these people would always find a convenient way to camouflage a product (which is already complex) without ever addressing the genuine needs of customers.

Finally, I refused him politely stating that we have adequate insurance cover with a term insurance plan & we do not prefer to mix insurance with investments. The interesting part of this entire conversation was that the banker had not disclosed the name of the product. At the time of leaving, I did ask its complete name and the banker finally obliged.

Later, I checked the details of the product on the insurance company’s website and confirmed that it was a traditional endowment assurance plan.  I also calculated the returns and it came to a pathetic 6.5 per cent for a policy term of 10 years! I am not saying that all endowment insurance plans are bad. Few may be good and may be suitable for a certain section of people. But in most cases I have come across, people are better off investing in other options.  

You must have heard of the ‘KISS’ principle – “Keep it Simple, Stupid”. You can apply this rule to your personal finance life. Avoid getting into complex products like ULIPS, Endowment plans, Money Back plans, etc. Instead, buy a term plan with adequate life insurance cover for your family, buy adequate health insurance and invest in PPF, mutual funds & a certain amount in gold. Trust me, by doing only this, you would have won half the battle in keeping your financial life on track!