Tuesday, 31 July 2012

The Trap Called Guaranteed Return

Many financial companies issue bonds and investment schemes luring investors with a bait called guaranteed return. There is no such thing called ‘guaranteed return’ in the equity market.


i. No instrument that invests in equities can guarantee returns.

ii. The Securities and Exchange Board of India does not allow even mutual funds to guarantee returns.

iii. The highest NAV is not the same as the highest level of market during the policy's tenure.

iv. There is no minimum return guaranteed by the policies.

v. The insurance companies do not explain how they manage to deliver the guaranteed returns without incurring losses.

vi. There are more transparent equity instruments, such as mutual funds, which offer exposure to stocks.

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