A handful of widely-sold financial products are, for most people, poor deals dressed up as careful choices. They persist not because they are good, but because they pay high commissions to the people selling them.
The single most useful filter: never buy a product that mixes insurance with investment. Almost every product on this list fails on that one rule, and separating the two — pure term cover plus simple investments — beats the bundle nearly every time.
This is a plainer lesson than most, because plainness is the service here. As your income rises, you become a target for exactly these products, sold warmly by people you may trust. Knowing them in advance is the best defence, and this stage's next lesson explains the incentives that push them at you.
Insurance plans that also promise investment returns
These are the big one: endowment plans, money-back policies, whole-life plans, and unit-linked insurance plans (ULIPs). They promise to protect your family and grow your money in a single product. In trying to do both, they tend to do neither well.
The insurance cover they provide is usually small for the premium. The returns, after their high internal charges, have historically been modest — often in the range of ordinary fixed deposits, well below what simple equity funds have delivered over long periods. And your money is locked in for many years, with painful penalties for leaving early.
Why combining insurance and investment is usually a poor deal
The honest alternative is to separate the two jobs. Buy pure term insurance for protection — it costs a fraction of a bundled policy for far larger cover. Then invest the difference in a simple mutual fund for growth.
For the same monthly outlay, this "buy term and invest the rest" approach typically gives you both much larger life cover and a substantially bigger fund than the bundled policy — because you are no longer paying for high commissions and opaque charges buried inside one product. The bundle's single genuine advantage is forced discipline, and a simple automatic SIP provides that without the cost.
If you already hold such a policy, do not close or surrender it without first checking the cost — that can carry its own penalties, and a policy several years in may be worth keeping. But stop buying new ones, and have any recent policy reviewed carefully against the term-plus-fund alternative.
Traditional plans with guaranteed returns
Marketed on the comforting words "guaranteed" and "assured", these long-term insurance-linked savings plans lock your money away for years or decades to deliver a guaranteed return that, worked out carefully, is often low — frequently below what a plain PPF or fixed deposit would give, with far less flexibility.
The word "guaranteed" does heavy work in the selling. A guarantee of a poor return is still a poor return. Always ask for the actual annualised return the plan will deliver over its full term — not the total rupees at the end, which look large only because the period is long. When you see the real yearly figure, most of these lose their shine.
Products sold mainly to save tax
As the tax lesson warned, anything whose primary pitch is "this will save you tax" deserves suspicion. The tax break is a one-time slice; a poor product's drag lasts for years. If the main reason to buy something is the deduction rather than the thing itself, that is the signal to walk away and get the same deduction from a better route.
Complicated products that are difficult to understand
As you become wealthier, you will be offered more elaborate products — structured products, portfolio management schemes with high minimums and fees, opaque "alternative" investments, and whatever is currently fashionable. A few suit a few people. But complexity mostly serves the seller, not the buyer: the harder a product is to understand, the easier it is to hide costs inside, and the more its returns tend to flatter the maker rather than you.
A sound rule for a lifetime: if you cannot understand in plain words how a product makes money and what it costs you, do not buy it. The core building blocks — a diversified equity fund, a debt fund or deposit, the government retirement schemes, term insurance, health insurance — are enough to build real wealth. Most of what is sold beyond them is sold because it pays to sell, not because you need it.
Some products are simply frauds
Beyond merely poor products sit genuine scams, and rising wealth attracts them: schemes promising unusually high "guaranteed" returns, anything paying early investors from later investors' money, tips promising to multiply your money quickly, and unregulated "opportunities" pushed with urgency. The defence is one unbreakable rule — returns that sound too good to be true always are — and a second: only ever invest through regulated institutions you can verify. No genuine investment guarantees high returns with no risk. That combination exists only in the pitch, never in reality.
A common mistake
Buying a bundled insurance-investment policy because someone you trust — a relative, a bank manager, a friend who became an agent — recommended it warmly. The warmth is real; the recommendation is still shaped by a large commission you cannot see. Judge the product on its plain merits and its real annualised return, not on the messenger. Trust is not a substitute for understanding what you are buying.
The second mistake is over-complicating a portfolio as wealth grows, on the belief that richer people need cleverer products. The opposite is usually true: the wealthy stay wealthy with boring, low-cost, understandable holdings. Complexity is a cost, not a sophistication.
Simple meanings
- Endowment / money-back plan
- Insurance-plus-savings products with small cover and typically modest returns.
- ULIP
- Unit-linked insurance plan — insurance bundled with market investment, and combined charges.
- Guaranteed-return plan
- A long-lock insurance-savings plan promising a fixed return that is often low when annualised.
- Buy term and invest the rest
- The alternative to bundling: cheap pure life cover plus separate investing. Usually superior.
- Structured / PMS products
- Complex, high-minimum products where costs are easily hidden. Rarely necessary.
- Ponzi scheme
- A fraud paying earlier investors with later investors' money until it collapses.
- Annualised return
- The true yearly return over a product's full term — the honest number to ask for.