Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Niche products – Are they really worth?

Posted by Muthu on December 21, 2010

There are niche financial products for children’s education, planning pension etc. Even some mutual funds offer such products. May be in future, we can expect more such specialised  products from mutual funds for marriage, buying home and may be even for planning one’s final expenses.

Is these niche products offer something unique?

For customers, no. For advisors, yes. Due to lock in period these plans carry, we get paid better.

You name the plan as anything – Education, marriage, pension or home… it is either an equity product or a debt product or a hybrid product (mix of debt and equity).

Labelling is merely for selling purposes.

For example, certain long term recurring deposits offered by some banks are called say Vidyalakshmi or Grihalakshmi or Mahalakshmi plans. Whichever Lakshmi it is named after – either education or home or wealth- it is nothing but a plain recurring deposit. 

Don’t get carried away by names and instead see what the product really constitutes and offers.

Likewise when mutual funds offers plan in different names, as some fund houses do, it can be only one of the 3 classification mentioned above.

Pure endowment policies by the insurance companies are sold in the names of education, marriage and retirement using nice sounding English or mostly Sanskrit words.

Labelled products are sub optimal than the plain vanilla ones.

If your child’s education is 10 years away, investing in a SIP of plain equity fund would provide better returns at a lower cost than a product which is labelled as education plan, hybrid, locked in for a longer period and offer more commissions for the intermediary.

Mutual funds sell very less labelled products when compared to insurance companies.

With proper term, medical, personal accident and house insurance in place, all you need is investments in various assets like real estate, equity, debt and gold. Investments have to be goal oriented. This is what much hyped term financial planning is all about.

Unless you want to burn your money, do not go for any policies offered by life insurance companies except pure term policies. Do not get lured by advertisements which play to your sentiments by showing a cheerfully graduating son, a daughter blushing in bridal attire or you flying to Europe with your wife after retirement. Never forget that all these polices offer is a return of around 5.5% to 6% p.a.

At the time of retirement, if required, a part of your corpus may be used for buying an annuity from an insurance company.

Look at your cost, risk and returns.  Do not go by labels of child, education, marriage, home or retirement.

Labelling a product is to make it look like a premium one.

In the world of personal finance, premium product is a mirage.

Trust me, there is nothing special about a labelled product.

We keep financial planning simple and we would like to keep it that way.

We believe that we create value out of the quality and simplicity of advice we offer and not by recommending the labels some products carry.

We believe in advising and offering simple and easy to understand products than one carrying exotic names.

You may ask, then why people label a product or create niche plans?

Have you ever asked your banker why your fixed or recurring deposits have exotic names?

Just to appeal to your sentiments.

Atleast bankers only appeals to your sentiments and so you can over look them.

Insurance companies not only appeals to your sentiments but grossly missells too.

Next time someone walks to you with niche plans, hope you would not be carried away with the names and instead see what is the underlying product they offer.

It is cheaper and transparent to buy the underlying product directly (if you need it) rather than going for the niche one.

I see clients coming to me carrying heaps of education, marriage and pension plans missold to them and hence thought of writing this piece.

Personal Finance is really simple. Some advisors make it look complex either because they themselves do not understand it or simply to confuse and make more money out of you.

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