Thursday, June 21, 2012

SEBI Throws a Bombshell on Mutual Fund Asset Management Companies

As you may all be aware, the Indian stock market regulator SEBI comes up with rules and regulations with respect to the stock market investments in India. As recent as April 2012, I wrote an article titled “SEBI’s New Rules on Managing Schemes and Disclosing Returns for Mutual Funds” wherein SEBI had instructed all AMC’s (Asset Management Companies) to appoint separate fund managers for their different schemes and set a benchmark for measuring their performance.

Today the chairman of SEBI Mr. Sinha dropped another bombshell on Mutual Fund Asset Management Companies that manage equity oriented schemes. The purpose of this article is to analyze this high-profile and high-impact news.

What is that bombshell?

Mr. Sinha has said that SEBI is going to probe Mutual funds for non-performance of schemes as well as for non-compliance against stated investment objectives.

Why did SEBI come up with such an announcement?

The answer is simple. “To Protect Investor Interest”

SEBI Wants Mutual Fund Schemes to do the following:
a. Perform consistently
b. Meet the investment objectives as stated in the offer document

Performing Consistently:

The term “Perform Consistently” is very broad and cannot be explained in one or two pages. In short, SEBI wants fund managers to at least meet or beat their benchmark index performance. SEBI feels that, if a fund manager is unable to meet or beat the benchmark index performance for 3 consecutive years, then the fund house is being unfair to its investors. SEBI feels that people invest in Mutual Funds to achieve better returns than what they can do so because the funds are being managed by professional experts. So, if these experts can’t even meet the benchmark index performance, then the fund manager and the AMC must own responsibility and start answering to the investor population.

Mutual Fund performance is always measured by comparing its performance against the benchmark index to which it is tagged. If a fund is tagged to the BSE Sensex, as a common investor, the returns of this fund should be at least better than what the BSE Sensex generates. If the fund is unable to do so, it is considered an underperforming fund.

Mr. Sinha said that 9 AMC’s (He did not take any names) have more than 50% of their schemes consistently underperforming their benchmarks for 3 years in a row. SEBI will be questioning both the fund managers as well as the sponsors of the AMC for justifications as to why they have been unable to perform at par with their peers.

Meeting Investment Objectives:

Every mutual fund scheme has an investment objective that is clearly stated in the offer document. It goes like “To generate capital appreciation by investing in high-growth stocks while safeguarding investments with a healthy exposure to debt instruments”. Forgive me if this objective doesn’t sound like a real one, but to give you an insight, the investment objective just tells the investor what the fund is planning on doing in the years to come. Simply put, if the fund manager says “To preserve capital while trying to generate good returns” and the funds NAV has steadily fallen over the past 3 years, then there is something fundamentally wrong with both the fund house and the fund manager. It is this kind of scenario that SEBI wants to address. If a fund scheme suggests or claims that it will do something, then it must. If it doesn’t, then it is almost similar to the bait-and-switch con schemes that are illegal in almost every country in the world. If a fund manager is unable to meet the investment objectives or generate good returns for the investors, it is the responsibility of the fund house (AMC) to address the situation and if required replace the fund manager. Since there are numerous cases where both parties have failed to do their job correctly, SEBI is forced to intervene.

What does this mean to the AMC’s?

AMC’s can no longer hide behind the clout of “Bear Market Scenarios” for poor performance. SEBI does not say that Mutual Fund schemes cannot make losses. All it is saying is, if the benchmark index is going up or down by 10% then you try to at least match that 10%, be it profit or loss. Don’t underperform when compared to the broader index. I would say that this is a bare minimum requirement that you would expect from a seasoned and experienced fund manager. At the end of the day, if the fund manager can’t make wise investment decisions, what is the point in us investing in those schemes?

AMC’s will be forced to own up to their mistakes. What SEBI plans on doing with those under-performing AMC’s and their fund schemes is still under speculation. If you ask me, I would say:

“SEBI should give a deadline by which the AMC and the Fund Manager must clean up their act, else they must be forced to shut down the scheme to protect investor interest. Also, in such situations the AMC must be penalized for letting down the investor and approvals for flouting new schemes must be denied to that AMC in future.

Another important impact on the AMCs is the fact that, they can no longer do whatever they want with their schemes. If the scheme says it will do X, Y & Z then it must do it.

Verdict: This is very good news for the investor population of India.

Now that SEBI has started a probe on schemes that are not compliant to their stated objectives, I am hoping that fund houses will quickly clean-up their act and ensure that their funds do what they started out to do and at the same time ensure that the funds are performing at par with the index to avoid penalties and negative publicity.

Happy Investing!!!

Saturday, June 16, 2012

Tough Times Ahead for Gold Loan Companies - All Your Questions Answered

After reading the last article titled “Tough Times Ahead for Gold Loan Companies” there might be some questions running in your mind. I have tried to answer some of the main questions. If you have any further questions, feel free to leave a comment and I will be more than happy to answer them…

1. Why do customers prefer these Gold Loans?

Let us say I am in urgent need of cash and taking a Personal Loan would take at least 4-5 working days after I submit all the necessary paper work. While I am wondering what to do, my Mom tells me that, I can pledge her Jewels in the nearby Gold Loan Co and get some cash quickly. I take 5 sovereigns (40 grams) of her jewellery and visit the place. The person in the Gold Loan section checks the weight of the jewellery and its quality and gives me a quotation. The price of gold today is going at over Rs. 2600/- per gram which means the necklace is worth a little over 1 lakh. The Gold Loan Co offers me quick cash of Rs. 75000/- on hand and takes possession of the jewellery. I will have to pay a monthly interest and can redeem my mom’s necklace once I repay them the principal of Rs. 75000/-

All things done & dusted in a few hours. Some Gold Finance Companies even advertise super-fast service times like – “Get Cash in 15 mins” and so on to attract more customers.

Most Importantly – This is an extremely better option when compared to loan sharks and illegal lenders who charge exorbitant interest rates and harass customers.

2. How does the 60% Loan to Value Ratio affect Gold Loan Cos?

If, I were a customer, I would have to pledge more gold than before to borrow the same amount of money. Similarly, these companies would have to stop selling certain products which offer more than 60% the value of the gold as loan. Existing customers who are used to getting around 75% of the gold value as loan will end up disappointed as well which will not do much good for the business.

3. Is this 60% Loan to Value Ratio applicable to Banks that offer loans against Gold?

No. This ruling by the RBI is applicable only to NBFC’s that offer loans against Gold. Before you say, this doesn’t make sense, just read the next question/answer which will clarify further on this.

4. Why doesn’t this 60% LTV Rule apply to Banks?

The RBI Feels that, these Gold Loan Cos are growing at an alarming pace and them granting loans of over 75% of the Gold value might adversely affect their business. This whole loan thing is based on the fact that Gold price will not go down. Let’s say, I borrow 10 lakhs against 12 lakhs worth of my Gold Jewels. After a few months, the price of Gold tanks and my gold is worth only 9 lakhs today while the loan I have taken is still worth 10 lakhs only. Will I repay 10 lakhs to take possession of my gold that is worth 9 lakhs? Probably not. In such a situation, such NBFC’s will be forced to declare bankruptcy. To avoid such a situation RBI is setting this 60% LTV ratio so that these gold loan cos have some buffer.

The second part about Banks not being brought under this rule is because – banks can accept customer deposits and as a result have much more cash at their disposal than these Gold Loan Cos. As a result, they can absorb/survive a much higher impact than NBFCs. So, RBI does not mandate this 60% LTV ratio for Banks.

Technically & practically speaking a rule must be common across the board but unfortunately in this case it is lopsided against these Gold Loan Cos.

5. With no upper limit on LTV, can commercial banks kill the private gold loan cos?

Though it is practically possible, banks usually don’t lend amounts beyond 15 lakhs as loan against gold. This upper limit on the loan value is something that almost all banks have. Private gold loan cos don’t have this limit. They will lend you as much money as you want provided you have enough gold to pledge…

Also, banks have a lot of formalities which private lenders don’t. Can you imagine walking into State Bank of India or any other Public Sector Bank and walking out with money in say even 2 hours? I must be out of my mind to suggest something like that. Even private sector banks will make you wait at least a few hours to disperse the funds. Whereas, these gold loan cos will give you cash in a matter of minutes or at most 1 or 2 hours.

So, customers wanting quick & unlimited money supply would still prefer these guys over banks.

6. Does the Capital Adequacy Requirement increase to 12% affect large players like Muthoot or Manappuram Finance?

No. Muthoot maintains a CAR of around 13% and Manappuram maintains a much higher CAR of 18%. So, there will be no impact on either of these companies.

7. Banks have been offering loans against gold for years but, these Gold Loan Cos have out-grown the gold loan lending arm of banks. How was this possible?

There are numerous reasons. Some are:

a. Quicker service – Banks concentrate heavily on their main business like bank accounts, deposits etc. and grant gold loans as a parallel activity. So, service will not be top class. Whereas, the only job these gold loan cos have is granting loan against gold. So they will be much faster.
b. Well-Trained staff – the staff of a gold loan co can check the purity of gold and value it accurately while banks depend on experts who are not full time bank staff. So, there is bound to be some delays
c. Lesser Charges – Banks usually charge a processing fee (1% or so) while these Gold Loan Cos don’t. Also, banks charge a penalty if the loan is repaid within a certain duration (say 6 months or so) whereas Gold Loan Cos don’t.
d. Lesser Salaries – Salaries & Perks that Bank Staff receive a much higher when compared to what the staff of Gold Loan Cos get. So, companies can offer loans at competitive rates when compared to Banks.

Tough Times Ahead for Gold Loan Companies

How many of you have actually noticed the fact that companies that issue loan against gold like Manappuram or Muthoot have been sprouting up in almost every single locality in your city? Over the past 5 years, these companies have grown in leaps and bounds. The sky-rocketing price of gold and easy access to cash without much of a hassle if customers pledge gold has fuelled the growth of these companies and they have grown to such an extent that, they have even gone public and issued Equity Shares. Though this might sound an Amazing Growth Story, the future for these companies doesn’t look like it will be as fast paced as it has been over the past few years. The purpose of this article is to analyse on that aspect…

How Does a Gold Loan Work?

This is something almost 99% of you would know, but for the sake completeness, I am writing this section.

The company (or Bank) take possession of customer’s gold (Jewellery) and grant loans of around 70% or more of the value of the current value of Gold as loan. The customer will pay a monthly interest (around 2-3% of the sum borrowed) and can take their gold back when they settle the entire amount due (principal borrowed + interest).
If I fail to repay the interest for a period of 3 consecutive months (depends on the company) they have the right to sell my gold and offset their loan cost and reduce their losses

What is a Gold Loan Company?

A Gold Loan Company is one that is into the business of lending money against Gold. Though Banks also lend money against gold, they also accept deposits and provide bank accounts to customers. These Companies do not provide such services. The only service they provide customers is loan against gold jewellery. As a result some people even refer to them as NBFC’s (Non-Banking Financial Companies)

Tough Times Ahead for Gold Loan Cos

You might be wondering if what I have put in the title is true… Are you?
If you are, I wouldn’t be surprised and in fact that is a good start for the both of us. The following are some reasons as to why the following few months (or maybe even years) are going to be tough for these companies.

Reason 1: Regulatory Concerns

Seeing the super-fast growth of these companies (partly due to very little regulations) the Reserve Bank of India has starting setting up guidelines for these companies. Though the RBI Governs all Banks in India, these gold loan cos were not entirely under the RBI’s jurisdiction. Now, the RBI has started setting up some rules. As a result, these cos will be facing some uncertain times in the near future at least until there is some clear cut clarity on the kind of regulations they are expected to follow.

A Full list of the recent regulatory changes for gold loan cos is available at the end of this article.

Reason 2 – Explosive Growth is not permanent

Any new industry fancies customer interest for a few quick years and then starts to stabilize. These gold loan cos too are part of that cycle. The arrival of these companies that offer much higher amounts against Gold sparked customer interest and over the past few years, these companies have grown at super-duper speeds. However, now things are starting to stabilize.

I am not saying that there will be no growth. All I am saying is, the growth will not be as spectacular as it was in the past 2 to 3 years.

Reason 3 – Competition

With the arrival of multiple Gold Loan Lenders, competition is pretty heavy. Newer entrants are offering much lower interest rates than the veterans. As a result, customers in need of a better bargain are flocking towards the new entrants because the interest they are paying is comparatively lesser. Due to heavy competition, all these lenders are forced to cut their rates which in a way is good for the customers.

Reason 4 – Growth in Gold Loan Lending by Commercial Banks

A few years back, only a few select private banks offered loan against jewellery. But, things have changed and almost all banks these days are offering loans against gold jewellery. With no upper limit on Loan-to-value ratio (like Gold Loan Cos) banks can lend a much higher value loans for the same quantum of gold to customers. So, customers might choose to borrow from banks instead of these gold loan cos.

Recent RBI Rulings that might affect Goal Loan Cos

Ruling No. 1:
The RBI came up with a new ruling on 21st March 2012 which prohibits exceeding a 60% Loan-To-Value Ratio. This means, the RBI prohibits Gold Loan Cos from lending more than 60% of the value of Gold Pledged by the customer (It was 75% earlier).

The amount that customers can borrow will come down. In other words, a customer has to pledge more gold in order to get the same loan amount as to what he/she got just a few months back.

Ruling No. 2:

The Tier-I Capital Adequacy Ratio (CAR) requirement has been increased to 12% (It was 10% earlier). This will be effective April 1st 2014.


CAR is nothing but the amount of liquid cash these companies have to maintain as a ratio of the loans in their books. For ex: If XYZ Gold Finance Co has granted gold loans worth 10 crores, they had to keep liquid cash worth at least 1 crore to meet the Tier I CAR. As a result of this new ruling they have to keep 1.2 crores (additional 20 lakhs) for the same loan amount of 10 crores.

This will be a huge dent in their books. Instead of using surplus cash to lend more loans and increase revenue, they will be forced to keep the money to meet capital adequacy requirements. Moreover, this 10 crores is probably the amount of loans a big gold finance co might grant in a week or even less. So, if we consider the amount of liquid cash they need to keep to maintain the CAR Ratio, the number might run into a few hundred Crores.

Ruling No. 3:

RBI has prevent Gold Loan Cos from granting loans against Bullion

Customers who have gold bars (bullion) will not be able to borrow money against it. Only Jewellery can be used to borrow money. This will affect the small minority that use bullion to take loans.

Future for Gold Loan Cos?

An RBI Constituted working committee is working on formulating a list of rules & regulations for these gold loan lenders. This is expected to be released by July or August of 2012. So, until then, times will be uncertain for these guys. Even after the rules are made public, these companies will be forced to make radical changes in their operations which might affect their profits for at least one or two years. So, if you are an investor looking to invest in these gold loan cos, it would be a good idea to wait until end of this year to see how things work out for these companies before investing in them.

Monday, June 11, 2012

HDFC Bank Customers - Beware of the Latest Phishing Email

Yesterday I received an email from HDFC Bank (Or so I thought) that said that they have done some security upgrades and as a result I had to do something. I am usually suspicious of such emails and so the first thing I did was check the email id from which the email was sent and it said “”. Wow, sounds legit as well right???

But, what the email said and what it wanted us to do made me slightly suspicious. Read on to find out how smart and intelligent hackers and spammers have become. The email was so legit that if I hadn’t been careful some moron hacker would’ve got my hdfc bank netbanking id, password and all other authentication information.

What the email looked like:

That looks perfectly legit right? The Logo, the email address etc??

Things that Raised Suspicion:

1. If the bank upgrades its security server, it does not mean that the security information entered by existing users will be lost. I work for a Bank and I know this for a fact. Whenever any upgrade happens on the bank’s side, none of the existing customer information can/will be lost or missed. Even in the remote probability that you are the one-among-the-billion bad luck guy whose information was lost, the bank will call you by phone and ask you to visit the branch to get it fixed. They will NEVER and I mean NEVER send such one-sided emails that ask you to update some info in some random website.
2. Why follow an attached email? Why not place details in the same email?
3. No Bank can suspend services to the customer unless and until there has been legitimate illegal activities on the bank account. Unless you are a smuggler or a drug dealer this “Account being Suspended” cannot be done without proper reasons. Even in such cases, a hard copy letter will be sent to the customer’s residence address with steps to follow which you must do by visiting the branch. Even in this internet-age where everything can be done via computers, banks still expect the customer to visit the branch for certain critical activities and “Our account being on the verge of Suspension” is one of them…
4. The Attachment was not a document or an email as claimed. It was a .html file.

Did I stop?

Of course not. Though I was suspicious, I thought this would be an opportunity to find out how smart hackers have become and most importantly to share such malicious emails with my beloved blog readers…

The Attachment Read as below: (Again with all legit HDFC Bank logo)

Dear Customer,
We are sorry for any inconvenience this may cause you. Please kindly click on “NetBanking Instant Update” below to update your account

NetBanking Instant Update

NOTE: You are strictly advised to match your information correctly to avoid service suspension.

Thank you for banking with us

Online Security Team

When I clicked on the link it took me to a page that looked exactly like the HDFC Bank’s net banking web-page. My first reaction was plain and simple “Freaking WOW!!!” see it to believe it…

Can you spot the difference??? The website reads and not…

Ok… I did not stop here. I went ahead and entered 12345678 for the 8 digit customer id in this page. Guess what happened?

It took me to a page that looks exactly like the next page that comes up when you login to your hdfc bank account. To make things interesting the Customer Id field is now “Undefined”. An unsuspecting customer might think that this is because his account is suspended and quickly enter the password and hit continue… I knew this was a fake and so entered some random password and hit continue…

You wont believe what happened next. It took me to a page that asks me to enter my bank account number, my ATM card number, the PIN number, the expiry date and my phone number. All the info that is needed for someone to use your account information right??? I gladly entered some non-sense information in the website and clicked continue…

Remember – no bank will ask you to enter all this information in their website. They already have it. Think this way – if you were a bank and issued debit cards and bank accounts to customers, will you ask them to enter them again and again everytime there is some upgrade in your system? Most importantly why should I enter my ATM pin and card expiry date? All these are red-flags that you must think of before you enter any personal information in any website.

You will never believe what happened next… I was taken to a page with the same stupid URL but looked exactly like HDFC Banks home page, perfect with all those flashing animations on the home page that were added just a few weeks ago… see it to believe it.

Do you know the best part??? If I click on NetBanking and hit the login button in this page, it is taking me to actual HDFC Bank’s internet banking login website. I checked the URL of the page and it read “”. if I had entered my details in that page and logged in, the system would’ve let me login because after all it is the actual hdfc bank website and as a customer I would’ve been relieved that after I entered my details the system let me login. But the point here is, the hacker now has all the information he needs to drain our account of all the money we have…

I did not enter my details in that page. I cleared my browser cache and temporary internet files to ensure that even if this random URL had placed some cookies to track my browsing, they will be cleaned up.

If you receive any emails like this (irrespective of the bank you have an account with) please delete them immediately. Do not click on any of the links in the email. Unless you are extra careful & cautious, it is extremely easy for hackers to gain possession of valuable information that can prove extremely costly for us…

Things to check & do

1. NEVER click on links in such emails
2. ALWAYS type the website/URL of your bank in the browser yourself. Be it icicibank or hdfcbank or some tomdickandharrrybank. Make sure you enter it yourself
3. ALWAYS check if the website prefix is https and not http. If you check the URL in this hoax website it is http because getting a security certificate for a hoax website is not that easy. If the website is your banks legit internet banking website, it will have the https prefix
4. NEVER enter your personal information like bank account number, ATM card number, Credit Card number, card PIN numbers, CVV numbers, Expiry dates etc in any website that wants you to enter them for some random confirmation or verification. Even if it is a legit website, they will never ask for your ATM Pin number. Legit payment transaction websites ask for card number, cvv number and expiry date but that is perfectly legal and they will not mis-use the info you enter. So, be careful when you enter such information.
5. ALWAYS update your anti-virus signatures and definitions to ensure that malware and spyware will be caught & taken care of by the anti-virus software before they do any actual damage…

Last but not the least, forward the link to this article to all your friends and relatives who may or may not have an HDFC Bank account. They definitely need to know that such a spam email is doing rounds so that they can safeguard their hard earned money…

Take care!!!

Tuesday, June 5, 2012

Invest Wisely in Bank Fixed Deposits

Investing in Bank Fixed Deposits is something that has been covered in this blog time and again. But, the purpose of this article is the direct result of a meeting I had with a friend during my most recent India Trip last week. To give you a hint – This article is about something we need to be very careful about while opening Bank Fixed Deposits.

What Happened in India?

I met a long-time friend just outside a Bank near my house and we went off to the nearby coffee shop for some chit chat. He had a receipt in his hand which looked like Fixed Deposit Receipts issued by the bank. Coincidentally I had just put up some Fixed Deposit in the same bank and the topic of our discussion touched upon the rate of interest. He had deposited Rs. 1,00,000/- at 7.25% per annum rate of interest for a period of 9 months and I had done Rs. 50,000/- for 1 year at the same rate.

I said, how come for two different tenures, the rate of interest is the same? Usually longer tenures have a higher interest rate and so we both went back to the Bank and asked the guy (Teller) at the counter for the Interest Rates list. He hesitated for just a quick second and then gave it to us.

The rates card looked as follows:
6 month 17 days to 9 month 15 days – 7.25% p.a
9 month 16 days – 8% p.a
9 month 17 days to 1 year – 7.25%

Both our initial reaction was what the ****!!!

Usually customers go to the bank with a predetermined duration in mind and the most common durations for the deposits is 6 months, 9 months, 1 year and so on. In this case my friend chose 9 months and I had chosen 1 year. The problem here is – neither of us cared to look at the rates card and if we had, we would’ve got an additional 0.75% rate of interest on our deposits.

What Went Wrong Here?

This situation can be attributed to 3 reasons which are as follows:
Reason 1: Neither of us cared to look at the interest rates card that the bank offered for various deposit periods.
Reason 2: The Interest Rate Card was not displayed prominently in the Bank. Though it was stuck to a pillar in some corner of the bank, it wasn’t in a place where every customer could easily see it.
Reason 3: The Teller did not suggest we look at the various deposit periods and choose the one that would best suit us.

In this case, the biggest blame lies on us because, it is our money and we should’ve been more prudent and wise in our decisions. From a banks perspective, the lesser interest they pay us, the better it is for them. From a teller’s perspective, he is only set targets on how much deposits he needs to mobilize and not the rate of interest. So, both reasons 2 & 3 are ethically Mistakes but Legally Not.

Remember the saying “If you don’t think about what is good for you, Nobody else will” This is totally apt with respect to all Money Related Transactions anywhere in the world.

My friend needed money for his son’s school fee next April, so he could’ve afforded to choose the 9 month 16 days scheme instead of the 9 month scheme he selected thereby getting an additional 0.75%.

He is going to get Rs. 5,437/- as Interest on his 1 lakh deposit at the end of 9 months while he could have gotten Rs. 6,333/- (Rs. 896/- more) for the same deposit amount if the deposit duration was an additional 16 days.

Lesson Learnt:

Always ask for the Rate of Interest offered by the bank for various deposit durations and choose what is best for you. Even if the bank has not displayed it prominently in their premises or if the Teller doesn’t offer you one when you inquire about Fixed deposits, you can DEMAND to see it before you invest your hard earned money.

Nobody and I mean NOBODY can deny you your right to take a look at the rate of interest offered by the bank for various deposit durations before you take your investment decision.

Alternately, you can check out the website of your respective banks and check out the interest rate beforehand and decide on the tenure before you actually visit the bank.

So, be cautious and make the best investment decision.


The whole idea of Fixed Income Investments is Safety of the money deposited & Guaranteed Returns. If the same amount will earn us a higher rate of interest, then we would rather choose that instead of something else.
After my experience as above, I did some digging and found that almost all banks had some sort of difference in rate of interest with some rare date combination like 444 days or 9 months and 16 days or something on those lines getting higher rate of interest than the regular 1 year or 2 year deposit durations. So, please be cautious and careful while making fixed deposit investments.

Happy Investing!!!

Saturday, June 2, 2012

Is It a Good Idea to go for a Medical Check Up before taking a Life Insurance Policy?

Have you ever taken a life insurance policy? If you have, then you must have invariably heard these words from your Insurance Agent “Sir, if you take a policy for less than 10 lakhs, there is no need for a medical check-up and so, it is easier and faster for you

Have you heard these words? If so, this article is just for you…

What is a Medical Check-Up for an Insurance Policy?

A Medical Check-up while taking an Insurance Policy is just another medical check-up that is done by a doctor authorized by the Insurance Company to ensure that you are hale & healthy at the time of taking the life insurance policy. This is usually mandatory for high value policies because, for the Insurance Company, selling this policy is a business and they don’t want to shell out huge sums of money as compensation when an unhealthy individual takes a policy and dies soon after. So, they take the cautious approach and have a doctor examine your physical health before they actually give you the policy.

Is taking this Medical Check-up a good idea?

Of Course yes. Do you remember the earlier articles I have written on Life Insurance? I have always suggested that we be insured for at least 5 or even preferably 10 times what our annual income is so that our family does not encounter any financial hardships in our absence. So, if you want to ensure your families wellbeing and take a policy that is adequate, going for this Medical Check-up might not be an option but a Mandatory Requirement.
Most importantly, if anything unfortunate happens to us after a few years, proof that we were healthy at the time of signing up for the policy will come in very handy during the Claim Settlement and there will be minimal delays in money reaching our family.

Why do Insurance Agents Say Such a Thing?


What else did you expect???

First and foremost, for the Insurance Agent, the more policies he sells, the more commission (income) he gets.

Secondly, this commission will be paid out only if the Policy is finalized by both parties. If the Insurance Company rejects the policy for whatever reason it may be, the commission is not paid to the agent. So, even if our health check-up fails, the agent isn’t going to be paid even a penny.

Thirdly, this doctor fee is usually borne by the Agent as part of his job.

So, to avoid spending money out of their pocket and to ensure that they get paid for the policy they sold us, agents advise customers against taking policies for large amounts.

What is the Alternative Agents Advise us?

If our health check comes up with some issues, the Insurance Co will most probably reject our policy and in turn reject the commission to the Agent. So, to ensure that they get paid on the policy sale, they try to convince us that taking multiple policies is a better idea than taking one single policy.

Actually speaking, let’s say you have 3 policies worth 10 lakh each instead of one policy for 30 lakhs, in all probabilities, the claim settlement will get delayed because, from the Insurance cos perspective, the amount they are going to settle to our survivors is the same. If they club up all these policies and see that there has been no medical check-up done at the time of policy sale, they might delay the claim settlement. The whole purpose of us taking these policies will be defeated if our wife or children can’t have access to the funds after our time. Doesn’t it?


As I have said numerous times in the past, including articles like "I will not blindly trust my Insurance or Investment Advisor" always be cautious and careful while buying Insurance Policies. Most of these insurance agents are devious fellows who are more concerned about making a quick buck at our expense than actually selling us a good insurance product.

So, be cautious and do what is best for you and your family. After all, we are taking these insurance policies to ensure the well-being of our family after we are gone. Isn’t it? So, we must ensure that this main purpose of taking the insurance policy isn’t defeated at any cost and for any reason.

Happy Insuring Yourselves!!!
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