OutLook Money has a very interesting cover story on the 51 things that they won't tell you!

There is hardly a day in our lives that passes without taking a decision that affects our finances—whether it is swiping a credit card, buying an insurance policy or even deciding whether to take up a new job that is paying more.

Though there are mandatory disclosure guidelines in most cases, certain things that might affect your decision may not be visible upfront. Or, even if they are, they might be worded in complex jargon or expressed in fine print, hidden somewhere in a boring document that you might not have the patience to read through. Either way you will end up making an uninformed decision, which you may regret later. This is not to say that everyone out there is out to get you. But, it pays to be careful. Literally.

Credit Card Companies

1 Global cards have hidden charges

When you use your card to pay in foreign currency, you need to factor in more than just the exchange rate. For instance, you pay 3.5 per cent of the total amount as cross currency markup, a service tax of 10.35 per cent on the chargeable amount and a further 3 per cent education cess on the service tax. More than you thought, isn’t it?

2 There is an upper limit on cashback cards

It’s not as if the more you buy the more money you get back. Well, it’s true up to a point—Rs 500 a month—that’s it. Some cards may even require you to have a minimum statement amount to avail the facility. The amount may also be subject to a maximum of Rs 250 per eligible transaction (this excludes loans and cash advance).

3 The “due date” is not the last date of payment

If you think that the “due date” is the latest you can pay, you are mistaken. Actually, the payment needs to be credited to your card account by that date; otherwise it is treated as a default. Fund transfers through ATMs, net banking and cash deposited at a bank branch of another bank may take at least 24 hours to credit the amount to your account but the payment is recorded immediately. Cheque payments, however, need to be made at least four working days in advance to avoid a default.

4 You’d better monitor recurring payments

Say, you want to pay your insurance premiums this year using your credit card. But, the next year you don’t. Your card, however, is still getting billed. You need to make a specific request if you want to stop the billing. Usually, transactions through telemarketing are susceptible to this.

5 Cash withdrawals attract daily interest

You can use your credit card to withdraw cash from the bank or the ATM up to the card’s cash limits. There will be a one-time fee which will be a percentage of the amount withdrawn or it could be a minimum amount. On top of this, a daily interest is charged on the amount withdrawn which starts accruing from that very day till the amount is paid back. Moreover, with many cards there is no interest-free period unlike purchases made using the cards.

Insurance Agent

6 We’ll explain policy details when asked

The insurance product’s charges, disclaimers and other features are always a part of its literature that one is supposed to read and understand before buying. But, when you ask the salesperson to explain the product, he may explain only the point you asked leaving other important and relevant things disguised or unexplained. Read the literature fully and ask questions till you are satisfied.

7 A Ulip gives us a bigger commission than a term plan

Term plans are the cheapest life insurance product. They come at the lowest costs while providing the highest coverage. A lower premium means lesser agent commission. Term plans, especially pure term plans, are more difficult to sell too. This is because they don’t return premiums or provide any returns at the end of the tenure, which makes it difficult for many to fathom it since most investors are used to getting money back in insurance-cum-investment products. So, agents prefer to sell the high premium unit-linked insurance plans (Ulips).

8 Ulips can be costly if you pull out early

If you are asked to exit from a Ulip anytime before 10 years, the costing goes against you. Due to upfront charges, which are typically high in the initial years, a lesser part of the premium gets invested. If you have been investing in a growth option, that is, it has high equity exposure, an early exit, especially at a time when the markets are low, as was in 2008, your misery only compounds. You may be asked to buy a new Ulip after three or five years at a lower NAV or a new Ulip with some additional feature. Stay away. Run the existing Ulip using the top-up feature to maximize the value over the long term. Tax benefits on Ulips may also be withdrawn if not run till at least five years.

9 Capital and return guarantees come at a cost

Ulips that guarantee either the principal or returns have to make provisions to deliver the promise. For this there’s an additional cost which the customer has to bear. Also, with most guarantee plans the insurer can invest zero to 100 per cent in equity markets. There is no choice of fund options for you. This allows the fund manager to remain majorly in debt assets and deliver the returns which might not be as high as equity asset class. The lower returns minus the plan charges don’t work over the long run. Not for nothing do they say there isn’t a free lunch.

10 Your Ulip fund option may be underperforming

Looking at the fund’s performance over just, say, a one-year or three-year period is not enough. First, look at the fund’s mandate. It’s not correct to compare Fund A that invests 40-85 per cent in equities to Fund B with 75-100 per cent in equity. Fund performance should be judged in context of, first, its benchmark and then peer funds. Second, look at the performance over a longer horizon and not just over three or six months.

11 Entry cost is zero, but there are other monthly charges

Many Ulips do not have any front-end cost, also called the premium allocation charge, and the entire premium of each year is said to be invested. But, all such plans have provisions to deduct charges from your fund rather from the premiums. Even though this may be a small percentage of the fund value, over time, the effect is largely the same as the fund value keeps increasing.

Stock Broker

12 Our tips help us more than they help you

A stock broker’s commission depends on the value of the shares that you buy or sell. So, the promptness shown by him in giving you tips is not to increase your wealth but to generate income for him by convincing you to trade frequently.

13 Short-term trends dictate our price recommendations

A stock should only be bought at its correct price. A broker’s advice is mostly based on noticeable short-term trends, which could reverse anytime. For them every dip is a buy opportunity and every quick rise a sell opportunity.

14 Recommendations may not factor in your risk profile

A broker circulates the same recommendation to all its clients. A stock however good may not match every client’s risk profile. For example, fast-growing small companies fit young investors’ portfolio but may not be appropriate for older investors.

15 Don’t invest too much in our recommended stock

A broker never gives attention to your existing portfolio of stocks and recommends any stock that he feels is good. Buying the same stock (the one already in your portfolio) aggressively or putting all you money in one company can increase your portfolio risk.

16 You should sell XYZ stock now

The success of your stock investments hinges on your selling them at the right time. Otherwise, all the gains are notional. When you buy a stock, you should know the price at which you want to sell it. This is the point beyond which the stock gets overpriced and the chances of a drop increase. But don’t trust your broker to tell you that.

Mutual Fund Agent

17 I keep earning as long as you stay invested

Trail commission is a fee the fund house pays the mutual fund distributor on the investment value remaining with the fund. The commission is generally 0.25-0.75 per cent per annum. As long as your distributor and, consequently, your agent gets the commission, you are entitled to the service. So don’t hesitate to demand services from your mutual fund agent since you are paying for it.

18 NFOs are not cheaper than an existing fund

The returns from funds depend on the stock they invest in and not the net asset value (NAV). A Rs 10-fund could go down to Rs 7. It’s equally possible that a Rs 100-fund rises to Rs 200. With no track records, new fund offers (NFOs) can be risky.

19 I gain a lot if I sell this NFO

In order to mobilise funds for an NFO, fund houses offer incentives like foreign trips to distributors. So the agent may recommend NFOs to you even if they don’t suit your risk profile.

20 This isn’t quite the index to benchmark the fund

Your agent may say the fund is doing better than a popular index, even if the two aren’t related in any way. For example, comparing a small-cap fund with a large cap index. Make an informed decision when an agent recommends funds on this basis.

21 I’m comparing apples to oranges

While making recommendations, mutual fund agents may compare funds that are different in their investments or objectives. For example, they may compare a diversified fund with a sector fund. Going by his advice, you may end up buying a fund that doesn’t suit you.

Financial Advisor

22  Commissions beget recommendations

The financial planner’s code of ethics decrees that he or she give you full disclosure in writing about any benefits received that may influence his or her recommendations. Whenever he recommends a product he sells, he should suitably justify how it suits your financial planning needs.

23  You are supposed to get continuous service and advice

The client-planner relationship is an ongoing process that should continue even after the plan has been presented. It is the planner’s duty to update you of the changes in stockmarkets and other developments, besides changes in your personal circumstances, that could influence your financial decisions.

24  You may not get advice on all areas of personal finance

If a planner is not professionally competent to give you advice on all areas or products, he has to make a clear disclosure. In this case, he can either consult with some who is qualified or refer them to you.

25  Oops! We’ve run out of ideas

So it’s not 25 as we wrote on the title. So check out OutLook Money or write in to feedback@outlookmoney.com with your picks. We are looking forward to hearing from you.

By Anagh Pal, Bindisha Sarang, Kavya Balaji, Kumar Gautam, Pankaj Anup Toppo and Sunil Dhawan

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