Buy financial products only if you understand them

Recently, a financial planner shared an interesting news with us. He came across a case where a reputed foreign bank had sold a unit-linked insurance plan or ULIP, claiming it is a mutual fund scheme with a free insurance cover. The customer asked the bank why he has to undergo a medical check up to buy the product. That is when the bank told him about the free insurance cover. We thought it was really imaginative on the part of the bank to come up with such novel con theme. We also assumed it was an isolated incident. But it was not. Recently, another person complained that he bought a ULIP product, recommended by his bank, because the executive told him that he would get around 50% or more returns (which it returned in the last year) and, also he doesn’t have to pay any premium after three years. Didn’t he know that ULIPs or mutual fund, for that matter, don’t guarantee any returns? Obviously, he didn’t know. Also, he says he trusted his bank. Sure, otherwise he wouldn’t put his hard-earned money in the bank. Obviously, bank executives are coming up with various tricks to meet their impossible targets. However, it would be unfair only to blame them. The customer should equally share the blame. The first rule in the financial market is not buying a product if you don’t understand it. It is applicable to stocks, mutual funds, insurance, among other things. The sad part is by the time most customers realise their mistake it is too late. They have already signed on the dotted lines and it may not be possible to get out of it easily.