The recent run-up in the equity markets has suddenly spread all surprises and smiles to the investor community. Although it would look too tempting to start investing in this market, lets take a step back and first lets clear off all that we were holding back in our portfolio as bad apples so that we can minimize our losses (and if lucky, we can make some small profits too).
1. ULIPs
I think this would be leading the pack. Simple reason being, 1st Aug 2009 marked the start of “No Entry-load” regime for investments in Mutual Funds. But commission hungry agents turned it into a “No-Entry” regime for Mutual Funds. They stopped selling mutual funds and suddenly turned to heavy selling (read mis-selling) of ULIPs from Aug 2009 to Aug 2010.
If you are one of the victims who was mis-sold a policy in this period, it is very likely that you are cursing the agent / tele-caller till today for the damage done to you. But now, your policy would have completed 3 years of lock-in period. Also, with the current surge in the market, you are most likely to recover your investment amount.
There is a possibility of some “Insurance-experts” advising you that the initial period of heavy charges is over and you should continue. But I would disagree with that. This is because, the charges in such policies from 4th year onwards are lower as “compared” to first 3 years. But they are still higher when you compare them to low cost peers. Thus, it is better to exit them and move on to low cost transparent products.
2. NFOs
Some investors have a myth that one should invest in NFOs as you get units at an NAV of Rs. 10. Whereas if you invest in an existing established fund, you have to invest at the prevailing NAV. Thus, the NFO appeared like a “value deal”.
Totally wrong notion, I would say !! Just because the NAV is Rs. 10 does not make it cheap or value buy. It is still going to invest in companies which have rallied. On the contrary, you don’t really have a track record to see its performance. Many investors are stuck in NFOs of various mutual fund schemes like Reliance Natural Resources Fund, HSBC Unique Opportunities fund, SBI Infrastructure Fund etc. which attracted investor money due to market buoyancy; But after that, investors are holding on to them even to recover their investment amount. Now these funds have just reached NAV close to their NFO price. So after a careful study, whether the fund fits in your portfolio or not, you may choose to recover your investment amount.
3. Illiquid Stocks
The sudden fall in equity markets in 2008 left many investors with holding stocks which went delisted. These were companies with poor corporate governance which did not find it worth to pay the listing fees to be able to get traded on the exchange. Thus, the investors had no other option than to hold on to illiquid stocks. The recent rally has seen many of those stocks reappear on the exchanges. This rally can be used to get rid of such illiquid stocks as this opportunity may not last too long.
The above might give an impression that one should stay away from equity markets to prevent losses. But actually the point is, our selection of wrong products cannot be the excuse for labelling the entire equity markets to be bad. It is like finding pearls in the ocean. Since you have found some crabs that bit you, doesn’t mean the ocean does not have pearls at all. All you need is hardwork, research and disciplined approach. A professional guidance can definitely act as a cherry on the cake.
We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)
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Prof. Saurabh Bajaj is an Author, Mentor, Motivational Speaker and Wealth Planner.
He has done his MBA from Narsee Monjee Institute of Management Studies (NMIMS) Mumbai, one of the top 10 management institutes in India. He holds the prestigious FRM (Financial Risk Manager) degree awarded by Global Association of Risk Professionals (GARP), USA. Till date, there are less than 15,000 professionals in the world, who have been honored with this degree. He has also been awarded CFGP (Chartered Financial Goal Planner) Certification by AAFM (American Academy of Financial Management).
After his MBA, he joined J P Morgan, the second largest Investment Bank in the world. He has worked with J P Morgan as Risk Analyst for more than two years.
Prof. Bajaj also holds an Advisory certification awarded by AMFI (Association of Mutual Funds of India). During his stint at Bombay Stock Exchange, he has handled Investment Management and Treasury operations of the BSE Corpus. He has set up an entrepreneurship venture in the field of Wealth Planning and Investment Consulting under the name “Nidhi Investments” and holds the profile of CEO.
Prof. Bajaj sits on the Expert Panel of CAClubindia.com and MBAClubindia.com as Investment Expert.
He is actively involved in investor education through his blog www.professorbajaj.com which has a readership from 78 Countries all over the world. His articles are also regularly published in caclubindia.com , mbaclubindia.com , totalca.com , charteredclub.com, bankbazaar.com and lawyersclubindia.com .
He has been awarded the title of “Best Article Writer” from caclubIndia.com in Jan 2012 and has been selected amongst “Top 5 Technical Writers” from all over India in Feb 2013.
He has been invited by various TV Channels like SPIN TV, CNBC TV18, UTV Bloomberg Etc for programs like "Expert Advice" , "What Markets Want ", "Budget Analysis" etc.
He has been invited by Several organisations like Lions Club, Rotary Club, Agrawal Welfare Foundation, Rajasthan Mandal, Agroha Vikas Trust, Union MF, UTI MF, Arthamitra Gurukulam, Vidyalankar Institute of Technology etc for expert lecture on "Smart Investing", "Life is A Celebration", "Financial Freedom", "The Digital IFA" etc.
He was ranked 8th Merit at All India level NMAT which got him selected for MBA programme at NMIMS, Mumbai. He did his MBA with Capital Markets as his specialisation.
Soft Skills has become an inevitable part of every selection process and teaching learning process these days. The students from small towns and tier II cities, in spite of being talented and well equipped with technical skills, are seen struggling in the selection process. This is because of their lack of exposure to these soft skills. Mr. Bajaj has a zeal for training candidates to develop these skills and has been imparting the same on since last two years. This zeal and passion inspired him to set up his own firm called “Knowledge Circle” which aims to train candidates for soft skills.
Till date, he has trained more than 5000 participants from over 220 organizations across various fields of soft skills.
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He has also been associated with ICAI (Institute of Chartered Accountants of India) for training CA Students on various topics related to Communications skills, Group Discussions etc.
He was invited by Fr. Agnel Polytechnic College, Vashi for a motivational workshop for faculties. He was also invited by Vivekanad Polytechnic College for "Communication Skills and Email Etiquette" training for non-teaching staff.
Apart from these, he has conducted “Capacity Building Soft Skills workshop for Faculties” at ITI Gunj, ITI Pusad, ITI Digras and ITI Umarkhed. This was the first ever soft skills workshop for faculties in the history of ITI’s in Vidarbha. He was also invited by Shivaji Education Society to conduct similar Soft skills workshops for the faculties and office staff of Shivaji Junior College Pusad, Shivaji High School Pusad, Shivaji Vidyalaya Belora and Shivaji Vidyalaya Bhojla.
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Good one. Am going to surrender my ULIPs soon. 🙂
That will indeed be a great use of this rally. And deploy it in low cost and high yield products.
Thanks for your visit and feedback. Looking forward to more in future.
It took me some time when I started investing to understand NFO trap. Agents use phycological weakness similar to Rs 199 instead of Rs 200 to convince in NFO.
Sirjee can you give more detailed (may be slightly easier also) explanation bursting this NFO myth.
Nice article overall.
Thanks for your valuable comments Sir !!
I will make it a point to write about NFO in more detail.
Thanks again for your visit and feedback. Looking forward to more in future !!
Nice article as always…Can ULIP bought in 2007 be surrendered without any surrender fees?
Thanks for the compliments Bro !!
Surrender fees drastically drops after completion of 3 years !! From 80% surrender charge to 3% surrender charge in some cases !!
Although 3% is still too high a surrender charge, it is better to bite the bullet as leaving your money with the insurance company will create a dent much higher than 3%.
In your case, since the policy has completed more than 5 years, the surrender charges would (hopefully) be zero.
Thanks again for your visit and feedback !! Looking forward to more in future !!